Apple (AAPL) Profit Beats Forecast

April 23, 2013 — -- Apple Inc. [NASDAQ: AAPL] reported better than expected earnings for the second quarter, but hinted at the sum of all fears on Wall Street as it revealed disappointing guidance for the next quarter.

The company's earnings release after the financial markets closed on Tuesday announced an increase in a stock buyback program to $60 billion from $10 billion. Apple increased its dividend by 15 percent to $3.05 a share.

Apple announced revenue of $43.6 billion in the second quarter, higher than the $42 billion expected on sales of 37.4 million iPhones and 19.5 million iPads. But it said that sales for the coming quarter will be $33.5 billion to $35.5 billion, below the $38.25 billion Wall Street was forecasting.

The stock was up about 5 percent in after-hours trading to about $426.

"I think it really comes down to the stock buyback and dividend overruling the earnings," said JJ Kinahan, chief derivatives strategist of TDAmeritrade. "The earnings were good, not great. But the fact that they announced an expanded stock buyback program and increased dividend per share per quarter sent the stock price up."

The company's stock had taken a beating in recent weeks, falling more than 13 percent since the last earnings report in January. It's down 40 percent from its peak last fall amid reports that the tech giant is losing its mojo and has new no exciting products like the iPad or iPhone to offer. Still, Apple is one of the most profitable companies in the U.S., earning $13 billion in the quarter ended in December.

The company reported profit fell 18 percent to $9.55 billion in the last quarter.

"Expectations are so low, they actually had a chance to beat the street," said Kinahan.

Brian Colello, Morningstar senior equity analyst, said he was looking for three aspects of the earnings report on Tuesday.

The first, of course, is the tech company's revenue and sales figures for the first three months of the year. This report is the first time that Apple has given a range for its revenue forecast, instead of a conservative forecast.

"There wasn't a big expectation for upside or a massive earnings beat," Colello said.

The second item Colello is its outlook for the next quarter. However, because Apple does not reveal the timing of its new product releases, an earnings outlook would be a wildcard.

"If it's an especially weak outlook, certainly it would be bad, but if a new iPhone were to come out in July, it would be more palatable," Colello said.

He expected June's forecast to be worse than March, especially for the iPhone, because many customers will be holding off for a possible new model.

However, Colello expects continued sales of the iPad ahead for students and educators ahead of the back-to-school shopping season.

Colello expected around 36 to 37 million iPhone sales in the last quarter and 17 to 18 million iPads.

Apple announced that it sold 37.4 million iPhones compared to 35.1 million a year ago. The firm sold 19.5 million iPads in the quarter, up from 11.8 million a year ago.

The last announcement that many investors expected Apple to make was a dividend of stock buyback to use its pile of cash, which was reported to grow as large as $170 billion by the end of the year.

Peter Oppenheimer, Apple's CFO, announced that its ending cash balance is $145 billion for the quarter.

The company also announced gross margin of between 36 and 37 percent.

Kinahan said Wall Street analysts had hoped for gross margin of about 40 percent.