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Apple Returns to Growth as Wearables Revenue Soars

Daniel Sparks, The Motley Fool

On Tuesday afternoon, Apple (NASDAQ: AAPL) proved to investors it isn't stuck in a cycle of declining revenue. After reporting a 5% year-over-year decline in revenue in fiscal Q2, it returned to top-line growth in its fiscal third quarter as services revenue hit a record high and growth in wearables sales accelerated.

Here's a look at the results.

Apple Store employees stocking shevles with Apple Watch bands

Apple third-quarter results: The raw numbers

Metric

Q3 2019

Q3 2018

Change

Revenue

$53.8 billion

$53.3 billion

1%

Earnings per share

$2.18

$2.34

(7%)

Gross profit margin

37.6%

38.3%

(70 basis points)

Data source: Apple.

Apple's fiscal third-quarter revenue rose 1% year over year to $53.8 billion, above the midpoint of management's guidance range of $52.5 billion to $54.5 billion. This is a nice change after two quarters in a row of declining revenue.

Earnings per share for the period were $2.18, down 7% year over year. But this decline moderated from the 10% year-over-year decrease the metric saw in Q2 2019.

Tapping into its massive cash hoard, Apple repurchased $17 billion worth of its shares during the quarter and paid $3.6 billion in dividends.

"This was our biggest June quarter ever -- driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac, and significant improvement in iPhone trends," CEO Tim Cook said in the third-quarter earnings release.

Segment results

Segment

Q3 2019 Revenue

Q3 2018 Revenue

Change

iPhone

$26.0 billion

$29.5 billion

(12%)

Mac

$5.8 billion

$5.3 billion

11%

iPad

$5.0 billion

$4.5 billion

8%

Wearables, home, and accessories

$5.5 billion

$3.7 billion

48%

Services

$11.5 billion

$10.2 billion

13%

Data source: Apple.

The iPhone once again accounted for the bulk of revenue, representing 48% of total sales during the period. While this important segment saw its revenue fall 12% year over year, it was a notable improvement from the 17% year-over-year decrease it saw in fiscal Q2.

Apple's second-largest segment, services, saw revenue increase 13% year over year to an all-time quarterly record of $11.5 billion. Accounting for 21% of total revenue, the segment is becoming increasingly important to the company's results.

Also of note was an acceleration in Apple's wearables, home, and accessories segment, which includes revenue from the Apple Watch, AirPods, HomePods, and other accessories. Revenue in that segment surged 48% year over year, versus 30% growth in fiscal Q2.

The outlook

Looking ahead to its fiscal fourth quarter, management said it expected revenue to be between $61 billion and $64 billion. The high end of that range would mean a second quarter in a row of year-over-year revenue growth, since Apple's fourth-quarter revenue in fiscal 2018 was $62.9 billion.


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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.