If not for an obscure accounting rule, Apple would have beat Street in Q412 EPS

“A great many negative articles regarding the future of Apple (AAPL) have been written since their latest quarterly report. To be fair, Apple delivered a rare ‘miss’ of analysts’ expectations in earnings, and their guidance for the upcoming quarter was highly conservative,” Gary Morton writes for Seeking Alpha. “These issues helped create an opening for a flood of negativity on the company. In reality, were it not for an obscure accounting rule, Apple would have beat in earnings as well as revenue.”

“It is important to understand the facts before concluding on the meaning or long-term implications of a financial report. While Generally Accepted Accounting Principles (GAAP) typically facilitate accurate reporting, sometimes they can lead to timing issues in recognizing expenses or income that obscure the underlying operating results of a quarter,” Morton writes. “This occurred in Apple’s fiscal Q412 earnings release. A widely overlooked anomaly in Apple’s report reveals greater underlying strength for their quarter. The CFO and the Treasurer explained the reasons for the anomaly during their quarterly conference call, but most analysts and followers of the company do not appear to have given credibility or notice to the explanation. If we account for the anomaly, the quarterly report looks substantively better and further reveals the excellent health of the company.”

Morton writes, “Apple’s fiscal Q412 report contained substantive timing anomalies affecting the OI&E line. If we normalize and adjust for the anomaly over the three quarters that Apple has clearly stated will be impacted, it paints a different picture of the fiscal Q412 earnings. It means that Apple was forced to understate earnings for the most recent quarter by approximately $242 million, which equates to $0.25/share. That implies an actual $0.17 per share BEAT of expectations and YOY growth of 27% in earnings (equivalent to the revenue growth).”

Read more in the full article here.

[Thanks to MacDailyNews Reader “John M.” for the heads up.]

Related articles:
Apple’s FY12 numbers: Sales up 45%; earnings up 59.5%; cash up $40 billion – analysts were disappointed – November 1, 2012
Apple beats Street on revenue, misses on EPS – October 25, 2012

8 Comments

  1. They are simply taking losses on their future contracts they have already paid for …..

    If the contracts go south Apple has already taken the loss ….. If they go north Apple will recoup those monies and have greater earnings on that current quarter due to a strong dollar ….

    To recap …. Strong Dollar means even higher profits …….

    Weak Dollar means profits on even keel as they have the insurance policy already paid for that will give them the difference between the currencies …. And they took the charge in Q4 2012 …..

  2. Theoretically, efficient capital markets consider all available information and thus effect stock price. The statement that an obscure accounting rule Apple would have beat the Street, is not completely correct. The Street already considered this “obscure accounting rule” in its consensus forecasts, since the accounting polices are disclosed in Apple’s quarterly financial reports. So I don’t know what the author of this article is smoking. These are not “accounting anomalies”, it’s GAAP. Apple did right by reporting its financials to comply with GAAP.

    1. Really? Isn’t it lovely how, when there is some explanation of how Apple’s treatment by WallStreet is perhaps a little unfair or misleading, there is always someone to say, “all this is completely understood by analysts and already priced in?”

      Te contention is that it is not widely or completely understood. The proof that it is not widely ir completely understood is given as any or all of the below:

      A) the stock price drops dramatically no matter what
      B) the stock price drops more in comparison to other company’s stocks no matter how poorly those companies perform
      C) no analyst mentions the above explanations in any of their forecasts or reviews
      D) no analysts react to or profess to understand or recognize the explanations
      E) Apple is held to a higher standard than their companies
      F) all kinds of of other explanations are given for devaluing Apple’s stock that have nothing to do with said explanation, such as Tim’s leadership, killer competing products, lackluster Apple products, etc.
      G) no analyst really knows what makes Apple competitive nor the nature of its technological and supply management advantages, only business school theories about so-called large numbers are proffered.
      H) analysts assume that others can easily replicate any part of Apple’s business at will, despite the evidence of history to the contrary
      And on and on….

  3. Thank you for letting the readers know. When I read the article “The Real Truth About Apple’s Q4 Results” at Seeking Alpha it reminded me of the slight of hand ways Apple’s stock was beat down in the past. Remember the GAAP rules stretching out the iPhone sale over several years of the contracts?

    In the end, Apple beat their estimates and the talking heads had a temper tantrum that they “estimated” too high. If they took the time to understand this huge corporation they would have cried out that they were correct. 1/4 billion dollars off and they strip 22% of stock value from the only company that has many many many billions more just sitting in the bank. Clueless!

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