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Apple reveals Q2 beat, ups share buyback

Aaron Pressman and Adam Samson
A bus and pedestrian pass an advertisement for the Apple iPhone 6 in north London January 28, 2015. REUTERS/Neil Hall

Apple (AAPL) posted fiscal second-quarter profits and sales Monday that handily beat Wall Street's estimates, while also unveiling a sharp increase in its plans to return capital to shareholders.

The world's biggest technology company posted per-share earnings of $2.33, topping estimates of $2.15. Sales of $58 billion also beat expectations of $56 billion. Apple shares, already up 20% this year, gained another 1% in after hours trading.

Cupertino, Calif.-based Apple said it shipped 61.17 million iPhones over the three-month period, topping Street views of 56 million. The larger screens on the new iPhone 6 and 6 Plus particularly helped sales in Asia, where larger screens are most popular. Apple said iPhone sales more than doubled in Korea, Singapore, Taiwan, and Vietnam. Sales in China rose 70%, CEO Tim Cook said.

Apple also said its board hiked its share buyback authorization to $140 billion from $90 billion, and approved an 11% increase to its quarterly dividend. The tech behemoth has now regained its crown as top dividend payer, pushing energy heavyweight ExxonMobil (XOM) back into the No. 2 spot, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

The existing program was set to conclude at the end of this calendar year and we're now expanding the program by five quarters through the end of March 2017," CFO Luca Maestri said on a call with analysts.

The quarter marked the fourth consecutive time Apple surprised Wall Street with higher sales than expected leading to an immediate stock price bump. Just over a year ago, Apple's share price was in the doldrums as analysts and investors fretted about slowing iPhone sales. But Apple showed it could reignite growth, first with clever promotions in countries like India and China and then, more recently, with hot new models with bigger screens.

And so again, even after Apple's prior record-setting holiday quarter, the company demonstrated the resiliency of iPhone sales. The latest quarter encompassed the Chinese New Year and overall sales in China jumped 71% from a year ago to $16.8 billion, close to one-third of Apple's total sales.

Apple didn't say much in the earnings press release about sales of its new watch, but the much-hyped wearable wasn't available for order until this month, after the close of the last quarter. "We’re off to an exciting start to the June quarter with the launch of Apple Watch," was all CEO Cook said in the earnings release.

Analysts tried to press Cook for further details, but none were forthcoming. Asked why Apple hadn't used the same kind of effusive language about the watch that it sometimes used after other new product launches, Cook reiterated that he was "thrilled" about the launch. “Not sure how to say it any clearer than that,” Cook said.

Analysts estimate Apple sold out its initial production run of several million watches in the first few days of pre-orders. Purchasers of most models now have to wait until June or later for delivery. Cook said Apple anticipated it could start selling watches in more countries starting in late June, signaling that the company was catching up to the demand.

The one downer in the report, as it has been for over a year, was the iPad. Apple sold only 12.6 million of its tablet computers, 23% fewer than a year ago. Cook conceded that some potential iPad buyers were now buying larger screen iPhones instead.

"We're clearly seeing cannibalization from iPhone and on the other side from the Mac," Cook told analysts. "And, of course, as I've said before, we've never worried about that. It is what it is."

Apple remains by far the most valuable stock on the U.S. market, almost double the market cap of second-ranked Microsoft (MSFT). But as Yahoo columnist Michael Santoli noted earlier today, its performance has rarely indicated much about the overall direction of the economy or the stock market.