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Apple (AAPL) Q1 Earnings Top Estimates, Revenues Surge Y/Y

Apple AAPL reported first-quarter fiscal 2022 earnings of $2.10 per share that beat the Zacks Consensus Estimate by 11.1% and increased 25% year over year.

Net sales increased 11.2% year over year to $123.95 billion, which beat the Zacks Consensus Estimate by 4.92%.

iPhone and Services maintained momentum in the reported quarter. iPhone sales increased 9.2% from the year-ago quarter to $71.63 billion and accounted for 57.8% of total sales. iPhone sales were driven by strong demand for the iPhone 13 family of devices.

Services revenues grew 23.8% from the year-ago quarter to $19.52 billion and accounted for 15.7% of sales.

Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and the Apple One bundle contributed to overall growth. These new services continue to add users, content and features.

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. Price, Consensus and EPS Surprise
Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote

Apple now has more than 785 million paid subscribers across its Services portfolio, up 45 million sequentially and 165 million year over year.

Strong Americas & China Aid Top Line

Americas sales increased 11.2% year over year to $51.50 billion and accounted for 41.5% of total sales.

Europe generated $29.75 billion in sales, up 8.9% on a year-over-year basis. The region accounted for 24% of total sales.

Greater China sales increased 21% from the year-ago quarter to $25.78 billion, accounting for 20.8% of total sales.

Japan sales decreased 14.2% year over year to $7.11 billion, accounting for 5.7% of total sales.

Rest of the Asia Pacific generated sales of $9.81 billion, up 19.3% year over year. The region accounted for 7.9% of total sales.

Top-Line Details

Product sales (84.3% of sales) increased 9.1% year over year to $104.43 billion. Non-iPhone revenues (iPad, Mac and Wearables) grew 9% on a combined basis.

iPad sales of $7.25 billion declined 14.1% year over year and accounted for 5.8% of total sales. Customer demand for iPad Pro was robust in the reported quarter.

Mac sales of $10.85 billion increased 25.1% from the year-ago quarter and accounted for 8.8% of total sales. Sales benefited from strong demand for Apple’s M1-powered MacBook Air.

Wearables, Home and Accessories sales increased 13.3% year over year to $14.70 billion and accounted for 11.9% of total sales.

Apple Watch’s adoption rate continues to grow rapidly. More than two-thirds of the customers who purchased Apple Watch during the reported quarter were first-time customers.

Operating Details

Gross margin expanded 400 basis points (bps) on a year-over-year basis to 43.8%. Moreover, gross margin increased 160 bps sequentially, driven by volume leverage and favorable mix.

Products’ gross margin expanded 410 bps sequentially to 38.4%. Services’ gross margin was 72.4%, up 190 bps sequentially.

Operating expenses rose 18.2% year over year to $12.78 billion due to higher research & development (R&D), and selling, general & administrative (SG&A) expenses, which increased 22.1% and 14.5%, respectively.

Operating margin expanded 340 bps on a year-over-year basis to 33.5%.

Balance Sheet

As of Dec 25, 2021, cash & marketable securities were $202.6 billion compared with $190.52 billion as of Sep 25, 2021.

Term debt, as of Dec 25, 2021, was $118 billion, down from $118.72 billion as of Sep 25, 2021.

Apple returned $24 billion in the reported quarter through dividend payouts ($3.6 billion) and share repurchases ($20 billion).

Guidance

Apple did not provide revenue guidance for the second quarter of fiscal 2022, given the uncertainty around the impact of the coronavirus pandemic.

Apple expects to achieve solid year-over-year revenue growth and set a March quarter (second quarter) revenue record despite significant supply constraints, which it estimates to be less than the December quarter.

However, Apple expects revenue growth rate to decelerate from the December quarter, primarily due to tough year-over-year comparisons and unfavorable forex.

Services revenue growth is expected to be in strong double digits but the growth rate is expected to be lower than in the December quarter.

Gross margin is expected between 42.5% and 43.5% in the second quarter. Operating expenses are expected between $12.5 billion and $12.7 billion.

Zacks Rank & Stocks to Consider

Currently, Apple has a Zacks Rank #3 (Hold).

Apple shares have outperformed the Zacks Computer & Technology sector in the past year. While AAPL shares have increased 16.2%, the Computer & Technology sector rose 3.9%.

Littelfuse LFUS, NETGEAR NTGR and Mandiant MNDT are some better-ranked stocks that investors can consider in the broader sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Littelfuse shares have underperformed the Zacks Computer & Technology sector in the past year. Littelfuse returned 0.8% compared with sector’s rise of 3.9%.

LFUS is set to report fourth-quarter 2021 on Feb 1, 2022.

NETGEAR shares have underperformed the Zacks Computer & Technology sector in the past year. NETGEAR shares are down 39.2%.

NTGR is set to report fourth-quarter 2021 results on Feb 2.

Mandiant shares are down 33.4% in the past year.

MNDT is set to report fourth-quarter 2021 results on Feb 8.


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