Cracking the Oppenheimer Code, Part 5 of 5: The (Two Sets of) Expectations Game

And now we reach the end of the “Oppenheimer Code” mini-series. We pretty much know what Apple’s EPS guidance is. You have my rusty 2 cents on what Apple might report on Tuesday, with my estimate trying to be a blend of realistic and conservative. But how well will Apple meet the two sets of market expectations that could have a tremendous influence on Apple’s price action in the ensuing weeks?

We’ll get to them in “chronological” order. Wall Street (WS) consensus estimates for Tuesday, and then WS consensus estimates on the next fiscal quarter.

Per Yahoo! Finance (Thomson First Call may be different), analysts are expecting Apple to report $35.09B in revenues and $7.31 EPS.

That’s within Apple’s guided revenues (topping out at $35.5B revs) and implied EPS (slightly north of $7.50 on the top end). So Oppenheimer succeeded in corralling expectations. Now it’s up to Apple to deliver, since it’s been historically cautious about guidance and there’s nothing to suggest that’s changing. And though there is but one data point under the new guidance methodology, Apple did end up beating its own revenue guidance and reporting on the higher end of its net income guidance.***

Will either iPhone or iPad have “decent” (say, 10% or more) YOY unit growth (GAAP-reported, sell-in basis)?  Will one of those product lines actually have a unit sales decline YOY?  Those are two of the larger storylines as Tuesday approaches.

Even if Apple beats EPS estimates, that won’t be much of an “achievement” considering the expectations Apple’s set all those other quarters, and that fiscal Q3 2012 EPS was $9.32.  In other words, Apple is pretty much guaranteed to post a YOY decline in EPS (and net income) for the second quarter in a row.  And this time, it could be a drop of around 20%.  So the impact of upside surprise could be muted.

And since WS is hyperfocusing on Apple’s ability to continue growing earnings as well as revenue into the future after this sudden stop, it really does seem like Apple’s guidance will be the bigger deal, maybe even the much bigger deal.

So what’s WS expecting?  Yahoo Finance has analysts looking for $37.55B in revs and $8.08 EPS on average for fiscal Q4 2013.

Could Apple either provide guidance ranges encompassing those numbers, OR realistically achieve them? This is where things get tricky, since we’re forecasting without any benefit of guidance.  Anyway, here’s the prior Q4 results:

REVENUES revs units ASP
iPhone 16645000000 26910000 618.5432925
iPad 7133000000 14036000 508.1932174
Mac 6617000000 4923000 1344.099127
iPod 820000000 5344000 153.4431138
iTunes/software 3496000000
Accessories 1255000000
Total revs $35.966B
METRICS
Revs 35966000000 GM 40.04%
COGS 21565000000 OpEx Ratio 9.61%
Gross Margin 14401000000 Tax Rate 24.51%
Total OpEx $3.457B EPS $8.67
OI&E -51000000 # shares 948186000
Inc before tax 10893000000
Taxes paid 2670000000
Net Income $8.223B

Going by the Yahoo! Finance info, analysts on average expect Apple to grow revenues about 4.4% YOY, while taking a 7% hit to EPS.

Will Apple guide above consensus?  Will Apple hint at its ability to meet or not meet Q4 expectations?  Tune in about a half-hour after market close on Tuesday (around 4:30PM Eastern time), and, if you care to, listen into Apple’s live earnings conference call at around 5PM Eastern.

***Apple guidance for fiscal Q2 2013:  $41-43B revs, about $8.85B-$9.65B net income.  Apple actual results for that quarter:  $43.6B revs, $9.5B net income.

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4 thoughts on “Cracking the Oppenheimer Code, Part 5 of 5: The (Two Sets of) Expectations Game

  1. FQ4 2013 guidance can tip Apple’s plans on new product AND timing of it this fall. I don’t see them doing it except possibly with a larger range under the “new normal.”

    Oh, they keep the range tight with normal expectations and they connect more dots in the commentary that follows Peter’s script announcing June results.

  2. I just can’t see that happening. If Apple ever significantly beats its own revs and net income guidance the current guidance methodology is called into question. At this point it seems Apple is more keen on managing WS expectations than ever, and if they remain unhappy with share price, shifting back to large-scale UPOD is very risky without massive growth drivers.

    Thanks for stopping by!

  3. I agree we will get a tight range on revs and when we know how many shares were bought back this past quarter we can play the EPS game a bit better. ( 11-12 million bought…we are cooking).

    I want Oppy’s tight range to be nice and high….an admission that new product will be on sale September 8th or so……

  4. I’m not sure Oppenheimer will deviate from his $2B rev range anytime soon. We’ll know in about 2 days.

    As far as fiscal Q4, Apple certainly has the ability to post solid growth YOY if it wanted to. Is it _able_ to is the big question. Two new iPhones and a potential mix shift towards Apple’s cheaper iPhones could make for very poor “ASP” visibility, and will almost certainly cause some decline in GM on a _sequential_ basis.

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