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  • red_ryder35 red_ryder35 Jan 28, 2013 1:03 PM Flag

    Philip Elmer Dewitt: Apple's extra week and other anomalies in last week's report

    FORTUNE -- As predicted, the headlines reporting Apple's (AAPL) quarterly earnings last week -- and the market's immediate and violent negative reaction -- failed to take into account that Q1 2013 had one less week Q1 2012. Even Tim Cook did lousy job explaining it.

    It fell to the Braeburn Group's Robert Paul Leitao, an independent investor who writes a blog called Posts at Eventide, to put the situation into plain English:

    "Apple's fiscal quarters are usually 13 weeks in length and always end on a Saturday. Every 5 or 6 years, depending on the number of leap days in the multi-year period, Apple adds a 14th week to its first fiscal quarter to align fiscal quarters closer to calendar quarters. On a weekly basis, Apple's revenue was $4.2 billion in the recent December quarter versus $3.3 billion in the prior-year period. On an equal week basis, revenue in the quarter rose 26.7%"

    What Leitao is too polite to mention is that the companies that make up the S&P 500 grew their revenue a comparatively anemic 3.8% in the same period, according to Capital IQ, and that without Apple's contribution that growth would have been even lower.

    Yet the trailing PE ratio of the average S&P stock is 17.5, and in the past week the market -- driven in large part by computer algorithms that respond to "sentiment" (i.e. headlines), not fundamentals -- has pushed Apple's trailing PE down to 8.6.

    The extra week is only one of a several subtleties in Apple's Q1 2013 that seem to have gone over most reporters' heads. A sample from Leitao's Thursday post:

    Gross margin. "The high costs of the iPhone and iPad product transitions, including the introduction in the quarter of the iPad mini, drove gross margin below the prior year's unsustainable rate. Gross margin will improve in subsequent quarters as the iPhone 5 handset series enters its second year of production and the iPad mini, which remained in constrained supply through the end of the December quarter, becomes available in gre

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