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Apple Hikes Payout And Buyback Plan; Profits, Sales Slow

Apple late Tuesday announced a huge stock buyback and a big dividend hike along with better-than-expected second-quarter results. But earnings did decline, and the tech giant also gave weak sales guidance. After an initial pop, shares traded little changed after hours.

Apple earned $10.09 a share for the quarter ended March 30, off 18% vs. a year earlier, but better than the $10 expected by analysts polled by Thomson Reuters. Sales rose 11% to $43.6 billion, topping views for $42.33 billion. Wall Street estimates had trended down in recent weeks on supplier reports that indicated slowing iPhone and iPad production.

Apple sees June quarter sales of $34.5 billion — a 1.5% fall — based on the guidance midpoint. Analysts had forecast $38.25 billion.

Not So Fat Margin

Apple's Q2 gross profit margin was 37.5%, which was the low of its forecast range. A year ago, it was 47.4%. For its fiscal Q3, Apple expects its gross margin to be 36%-37%. Apple didn't give an estimate for earnings per share, but Wall Street had been targeting $8.80, down 6%.

Responding to calls from shareholders, Apple outlined a plan to double the capital return program it announced last year. It expects to return $100 billion to shareholders by the end of 2015. It increased its share buyback plan to $60 billion from the $10 billion level set last year. Also, it boosted its quarterly dividend by 15% to $3.05 a share. Annual dividend payments will be about $11 billion a year.

Apple plans to borrow money for the stock repurchase program. It has a huge cash stockpile, but the tax system makes it cheaper to borrow than to repatriate overseas profits.

Apple shares initially rose late on the earnings and buyback news, but turned flat to slightly negative. In the regular session, Apple rose 2% to 406.29. It hit a 52-week low of 385.10 on Friday.

On a conference call with analysts, CEO Tim Cook said Apple's stock decline from its September 2012 peak of 705.07 is "very frustrating," but the company remains focused on making innovative products and sees "great opportunities ahead of us.

He acknowledged that growth and profit margins have declined, but said Apple was facing difficult comparisons and had reached a scale matched by few other companies.

Cook Hints At 'Surprises'

Cook hinted at "exciting new product categories" ahead. "We've got a lot more surprises in the works," he said. "Our teams are hard at work on some amazing new hardware, software and services that we can't wait to introduce this fall and throughout 2014.

Unit sales of iPhones and iPads came in higher than expected in the March quarter. Apple sold 37.4 million iPhones, up 7% from a year earlier. It also sold 19.5 million iPads, up 65%.

Going into the quarter, Apple faced concerns about slowing growth, declining margins and a lack of innovation since the death of co-founder and CEO Steve Jobs in October 2011.

Analysts widely expect a low-cost iPhone for developing markets and a high-end iPhone 5S later this year. Rumors also have Apple working on a smartwatch and a television, but those aren't expected any time soon, if ever.

"Q2 results were pretty much in line with what we expected," said Morningstar analyst Brian Colello. "Q3 guidance was weak but perhaps understandable if a summer iPhone is on the way."