Why no one should believe Apple’s hilariously-conservative earnings guidance

“The only thing more consistent at Apple (AAPL: $373.80, +8.88, +2.43%) than its ability to generate excitement for new products is its track record of releasing hilariously-conservative financial forecasts that it then easily blows away,” Matt Egan writes for FOXBusiness.

“Ultimately, Apple’s tendency to low-ball its guidance and analysts’ willingness to play along with the charade tends to harm shareholders who are left with an inaccurate picture of the company’s true financial standing and a stock that may be leaving value on the table,” Egan writes. “‘Apple is very secretive and close to the vest. They’re not above sending out smoke signals that are misleading,’ said a source in the investor-relations community who wished to remain anonymous. ‘A company that does that routinely — maybe that’s when they should suffer a discount.'”

Egan writes, “To be sure, Apple’s guidance strategy is not seen as illegal or even unethical. And the company is hardly alone in low-balling its forecasts. However, Apple does appear to be the highest-profile and largest company employing these tactics.”

“In any case, it’s hard to place all the blame on Apple as it’s clear the analyst community has gone along with the game. Rather than sharply ratcheting up their EPS and sales projections to account for the fact that Apple low-balls its guidance, analysts tend to hike them just moderately. That results in deceptively-low consensus estimates that the markets compare the results with,” Egan writes. “‘If analysts accept the low-balled guidance and accept the quarterly results that consistently exceed the estimates, then they’re both playing in a game of mutual self-deception,’ said Stevenson, who led the IR and communications departments of Kraft and R.J. Reynolds. “The ultimate loser is the investor who can’t count on either one of these two pieces of information.'”

Read more in the full article here.

MacDailyNews Take: By now, AAPL investors should that Oppy’s guidance is Apple’s worst-case scenario / quarterly joke and, if you want realistic guidance, skip the “professional” analysts and go straight to the likes of the Turley Mullers, Andy Zakys, Daniel Tellos, and Horace Deidus of the world.

MacDailyNews Note: Currently, the analysts’ consensus estimates call for $5.80 EPS on revenue of $24.92 billion (vs. Q310 results of $3.51 EPS on revenue of $15.70 billion). On April 20, 2011, Apple CFO Peter Oppenheimer provided the following guidance: “Looking ahead to the third fiscal quarter of 2011, we expect revenue of about $23 billion and we expect diluted earnings per share of about $5.03.”5.80 24.92

20 Comments

  1. I think even Apple is occasionally surprised at how well they do. They have failed to anticipate the popularity of several roll-outs. – apps, phones, ipads, etc..

    1. Agree and don’t forget the tough environment they are working in ….. With that said Apple does not want to miss the estimates and really why worry if you are long term investor like myself ….

      Do as I do …. Visit a few Apple stores during the quarter at different times of the day and on different days and judge for yourself …..

      Remember some Wall Street guy over 40 years ago flew over Wal- Mart parking lots to get his take of the company ….. You can do the same thing if you are lucky enough to live near an Apple Store of two ….

  2. A few years ago the CEO of P&G decided that earning estimates were far too low, so he raised them to inspire employees to work harder. P&G missed the mark, the stock crashed and the CEO was escorted out of the building by armed guards. That’s why estimates are always low.

  3. Under promise. Over deliver.
    That’s fiscal conservatism. If your “go to the bank” projections are for good enough performance for any long-term investor to be happy, they’re not misleading.

  4. “…Oppy’s guidance is Apple’s worst-case scenario / quarterly joke and, i if you want realistic guidance, skip the “professional” analysts and go straight to the likes of the Turley Mullers, Andy Zakys, Daniel Tellos, and Horace Deidus of the world.”

    Andy and the others have a nearly three month advantage over Oppy. It is prudent not to promise too much in advance, but a similar position eleven or so weeks into the quarter just looks stupid.

    1. Come on over to the Apple Finance Board at The Mac Observer site. You’ll see a topic called Intraday Updates and others that include sales predictions all quarter long. These amateurs held something like 8 out of the top 10 sets of numbers for Apple’s Q2. The highest pro was something like number 23. These guys have helped me make a lot of money on AAPL over the last 10 years.

  5. Why should the anal-ists be so worried about projections? They are only concerned about Wall Street funny money anyway and Wall Street is no darling to Apple. I say wait a day and watch the real news, instead of turning this into some kind of glorified soap opera, where once again, despite excellent financials, Wall Street will punish Apple. It’s in their nature, as much as a scorpion stings. They just can’t help themselves.

  6. That’s why “analysts” are mostly worthless. Their “analysis” consists mostly of repeating Apple’s guidance (plus 10% if they are really daring).

    1. “analysts”? They analyze nothing. Repeating something is either gossiping or an old school ditto machine. To really understand Apple’s future you have to be able to see the tsunami building and the market’s of old options around it falling away. It is not just what Apple is doing it is what the others haven’t done yet or just can’t do.

      Innovation and creating something that the world didn’t know it needed yet is where Apple is going next! In that “analysts” will find the real numbers!

  7. In other words, “We’re used to being able to buy on the rumor and sell on the news, and Apple is hurting our ability to do that! Never mind that they’re also proving what a sham we analysts are.”

  8. “‘Apple is very secretive and close to the vest. They’re not above sending out smoke signals that are misleading,’ said a source in the investor-relations community who wished to remain anonymous.’”

    Hilarious indeed.

  9. bullcrap. Apple provides guidance that is unbelievably low. True enough. BUT, Apple’s guidance is consistently low, and by a consistent amount.

    If Egan isn’t bright enough to figure that out he shouldn’t be writing about Apple.

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