“Apple (AAPL) is scheduled to release its March quarter results on Wednesday, April 23, and if it maintains its usual practice, will provide guidance for the next quarter in its press release,” Chuck Jones writes for Seeking Alpha. “While I am not very concerned about Apple hitting investor expectations for the March quarter, I am very concerned about guidance.”
“After running my Apple model for the June quarter and comparing it to the Street projections for revenue and EPS, I believe that the company’s guidance could be significantly below expectations, which could lead to a substantial drop in the shares post-earnings,” Jones writes. “The Street is currently estimating June quarter revenue of $38.3 billion, which has come down slightly from $38.7 billion two weeks ago. The $38.3 billion is an 8.5% increase from last year’s $35.3 billion result… When I do my bottom-up revenue projection based on unit sales and average selling prices for iPhones, iPads, Macs, iPods, iTunes and Accessories, my June quarter revenue estimate is $33.7 billion. Therefore, it would not surprise me to see the mid-point of guidance at $34 billion, with a range of $33 to $35 billion.”
“I don’t believe enough investors fully appreciate the potential downside to the guidance range that management may give,” Jones writes. “I don’t think the company can increase its dividend enough to offset a guidance shortfall, since it is limited by the amount of U.S. cash it generates on a yearly basis. If it does announce a larger buyback program with some positive verbiage about new products, it may limit what I believe could be a downdraft in the shares the day after earnings are announced. The other areas that could offset my concerns would be China Mobile kicking in faster than expected, recently lowered iPhone prices overseas driving incremental sales but not hurting gross margin too much, management ‘knowing’ that the iPhone 6 could ship in the June quarter and including its sales in guidance or gross margins staying healthy.”
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