Apple post huge Q3 miss; EPS climbs to $9.32 on $35 billion in revenue

iPad Mini Event

Apple (AAPL) on Tuesday reported financial results for the third fiscal quarter of 2012. As always, analysts were expecting another monster quarter from the Cupertino, California-based consumer electronics giant, though questionable demand for Apple’s flagship product, the iPhone, led to some jitters on Wall Street ahead of Apple’s report for the June quarter. The numbers are now in, and Apple posted a profit of $9.32 per share on revenue of $35 billion, missing the Street’s expectations of $10.36 per share on $37.1 billion in sales. Apple posted a profit of $7.79 per share in the third fiscal quarter of 2011 and $12.30 per share in the second fiscal quarter this year.

Wall Street expected Apple to ship 29 million iPhones during the June quarter — the figure investors were most anxious about — and actual iPhone shipments came in at just 26 million units. Apple shipped 20.34 million iPhones in the June quarter last year and 35.1 million iPhones in the second fiscal quarter of 2012.

IPad channel sales totaled a record 17 million compared to Street’s consensus of 16 million units, and iPod family shipments slid in at 6.8 million units compared to analysts’ 5.9 million-unit consensus. Mac channel sales were expected to total 4.1 million units, and Apple reported shipping 4 million Mac computers in the third fiscal quarter.

Apple CEO Tim Cook noted that the company’s new version of the OS X operating system, OS X 10.8 Mountain Lion, will be available in the Mac App Store beginning Wednesday for $19.

Shares of Apple stock fell by more than 5% in early after-hours trading on the news. Apple’s full press release follows below.

Apple Reports Third Quarter Results

17 Million iPads Sold

Board Declares Quarterly Dividend of $2.65 per Common Share

CUPERTINO, Calif.–(BUSINESS WIRE)–Apple® today announced financial results for its fiscal 2012 third quarter ended June 30, 2012. The Company posted quarterly revenue of $35.0 billion and quarterly net profit of $8.8 billion, or $9.32 per diluted share. These results compare to revenue of $28.6 billion and net profit of $7.3 billion, or $7.79 per diluted share, in the year-ago quarter. Gross margin was 42.8 percent compared to 41.7 percent in the year-ago quarter. International sales accounted for 62 percent of the quarter’s revenue.

“We’ve also just updated the entire MacBook line, will release Mountain Lion tomorrow and will be launching iOS 6 this Fall. We are also really looking forward to the amazing new products we’ve got in the pipeline.”

The Company sold 26.0 million iPhones in the quarter, representing 28 percent unit growth over the year-ago quarter. Apple sold 17.0 million iPads during the quarter, an 84 percent unit increase over the year-ago quarter. The Company sold 4.0 million Macs during the quarter, a two percent unit increase over the year-ago quarter. Apple sold 6.8 million iPods, a 10 percent unit decline from the year-ago quarter.

Apple’s Board of Directors has declared a cash dividend of $2.65 per share of the Company’s common stock. The dividend is payable on August 16, 2012, to stockholders of record as of the close of business on August 13, 2012.

“We’re thrilled with record sales of 17 million iPads in the June quarter,” said Tim Cook, Apple’s CEO. “We’ve also just updated the entire MacBook line, will release Mountain Lion tomorrow and will be launching iOS 6 this Fall. We are also really looking forward to the amazing new products we’ve got in the pipeline.”

“We’re continuing to invest in the growth of our business and are pleased to be declaring a dividend of $2.65 per share today,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the fourth fiscal quarter, we expect revenue of about $34 billion and diluted earnings per share of about $7.65.”

Apple will provide live streaming of its Q3 2012 financial results conference call beginning at 2:00 p.m. PDT on July 24, 2012 at www.apple.com/quicktime/qtv/earningsq312. This webcast will also be available for replay for approximately two weeks thereafter.

This press release contains forward-looking statements including without limitation those about the Company’s estimated revenue and diluted earnings per share. These statements involve risks and uncertainties, and actual results may differ. Risks and uncertainties include without limitation the effect of competitive and economic factors, and the Company’s reaction to those factors, on consumer and business buying decisions with respect to the Company’s products; continued competitive pressures in the marketplace; the ability of the Company to deliver to the marketplace and stimulate customer demand for new programs, products, and technological innovations on a timely basis; the effect that product introductions and transitions, changes in product pricing or mix, and/or increases in component costs could have on the Company’s gross margin; the inventory risk associated with the Company’s need to order or commit to order product components in advance of customer orders; the continued availability on acceptable terms, or at all, of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources; the effect that the Company’s dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; risks associated with the Company’s international operations; the Company’s reliance on third-party intellectual property and digital content; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; the Company’s dependency on the performance of distributors, carriers and other resellers of the Company’s products; the effect that product and service quality problems could have on the Company’s sales and operating profits; the continued service and availability of key executives and employees; war, terrorism, public health issues, natural disasters, and other circumstances that could disrupt supply, delivery, or demand of products; and unfavorable results of other legal proceedings. More information on potential factors that could affect the Company’s financial results is included from time to time in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 24, 2011, its Forms 10-Q for the fiscal quarters ended December 31, 2011 and March 31, 2012, and its Form 10-Q for the quarter ended June 30, 2012 to be filed with the SEC. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.

NOTE TO EDITORS: For additional information visit Apple’s PR website (www.apple.com/pr), or call Apple’s Media Helpline at (408) 974-2042.

© 2012 Apple Inc. All rights reserved. Apple, the Apple logo, Mac, Mac OS and Macintosh are trademarks of Apple. Other company and product names may be trademarks of their respective owners.

Apple Inc.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In millions, except number of shares which are reflected in thousands and per share amounts)
Three Months Ended Nine Months Ended
June 30, 2012 June 25, 2011 June 30, 2012 June 25, 2011
Net sales $ 35,023 $ 28,571 $ 120,542 $ 79,979
Cost of sales (1) 20,029 16,649 66,281 47,541
Gross margin 14,994 11,922 54,261 32,438
Operating expenses:
Research and development (1) 876 628 2,475 1,784
Selling, general and administrative (1) 2,545 1,915 7,489 5,574
Total operating expenses 3,421 2,543 9,964 7,358
Operating income 11,573 9,379 44,297 25,080
Other income and expense 288 172 573 334
Income before provision for income taxes 11,861 9,551 44,870 25,414
Provision for income taxes 3,037 2,243 11,360 6,115
Net income $ 8,824 $ 7,308 $ 33,510 $ 19,299
Earnings per common share:
Basic $ 9.42 $ 7.89 $ 35.89 $ 20.91
Diluted $ 9.32 $ 7.79 $ 35.48 $ 20.63
Shares used in computing earnings per share:
Basic 936,596 926,108 933,672 922,917
Diluted 947,059 937,810 944,440 935,688
(1) Includes stock-based compensation expense as follows:
Cost of sales $ 70 $ 52 $ 196 $ 155
Research and development $ 172 $ 119 $ 500 $ 336
Selling, general and administrative $ 206 $ 113 $ 596 $ 379
Apple Inc.UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(In millions, except number of shares which are reflected in thousands)
June 30, 2012 September 24, 2011
ASSETS:
Current assets:
Cash and cash equivalents $ 7,945 $ 9,815
Short-term marketable securities 19,709 16,137
Accounts receivable, less allowances of $94 and $53, respectively 7,657 5,369
Inventories 1,122 776
Deferred tax assets 2,309 2,014
Vendor non-trade receivables 6,641 6,348
Other current assets 6,560 4,529
Total current assets 51,943 44,988
Long-term marketable securities 89,567 55,618
Property, plant and equipment, net 10,487 7,777
Goodwill 1,132 896
Acquired intangible assets, net 4,329 3,536
Other assets 5,438 3,556
Total assets $ 162,896 $ 116,371
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable $ 16,808 $ 14,632
Accrued expenses 10,430 9,247
Deferred revenue 5,822 4,091
Total current liabilities 33,060 27,970
Deferred revenue – non-current 2,530 1,686
Other non-current liabilities 15,560 10,100
Total liabilities 51,150 39,756
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value; 1,800,000 shares authorized; 937,266 and 929,277 shares issued and outstanding, respectively 15,573 13,331
Retained earnings 95,641 62,841
Accumulated other comprehensive income 532 443
Total shareholders’ equity 111,746 76,615
Total liabilities and shareholders’ equity $ 162,896 $ 116,371
Apple Inc.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)
Nine Months Ended
June 30, 2012 June 25, 2011
Cash and cash equivalents, beginning of the period $ 9,815 $ 11,261
Operating activities:
Net income 33,510 19,299
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation, amortization and accretion 2,296 1,271
Share-based compensation expense 1,292 870
Deferred income tax expense 4,066 2,232
Changes in operating assets and liabilities:
Accounts receivable, net (2,278) (592)
Inventories (346) 162
Vendor non-trade receivables (293) (955)
Other current and non-current assets (3,238) (1,551)
Accounts payable 2,450 2,480
Deferred revenue 2,575 1,276
Other current and non-current liabilities 1,686 2,608
Cash generated by operating activities 41,720 27,100
Investing activities:
Purchases of marketable securities (121,091) (75,133)
Proceeds from maturities of marketable securities 10,344 16,396
Proceeds from sales of marketable securities 73,140 34,301
Payments made in connection with business acquisitions, net of cash acquired (350) 0
Payments for acquisition of property, plant and equipment (4,834) (2,615)
Payments for acquisition of intangible assets (1,067) (266)
Other (56) 34
Cash used in investing activities (43,914) (27,283)
Financing activities:
Proceeds from issuance of common stock 433 577
Excess tax benefits from equity awards 1,036 915
Taxes paid related to net share settlement of equity awards (1,145) (479)
Cash generated by financing activities 324 1,013
(Decrease)/increase in cash and cash equivalents (1,870) 830
Cash and cash equivalents, end of the period $ 7,945 $ 12,091
Supplemental cash flow disclosure:
Cash paid for income taxes, net $ 5,901 $ 2,563
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