April 22, 2009 / 8:50 PM / 11 years ago

Apple profit beats expectations on iPhones, iPods

SAN FRANCISCO (Reuters) - Apple Inc’s second quarter profit soared past Wall Street expectations on strong sales of iPhones and iPods, underscoring the popularity of the company’s relatively expensive products even in the midst of a weak economy.

Customers look over Apple products at the company's retail store in San Francisco, California April 22, 2009. REUTERS/Robert Galbraith

Known for giving conservative outlooks, Apple projected profit and revenue for its third quarter below average Wall Street estimates, but that failed to discourage investors who drove its shares up 3 percent after hours on Wednesday.

“As the world economy began to spiral the big question on investors’ minds was if the Apple brand was going to be resilient or particularly susceptible,” said Oppenheimer analyst Yair Reiner. “I think that what these results show is that Apple and this brand are relatively resilient.”

Net profit rose to $1.21 billion, or $1.33 a share, in its fiscal second quarter ended March 28, from $1.05 billion, or $1.16 a share, a year ago. Analysts had expected a profit of $1.09 a share, according to Reuters Estimates.

Revenue rose 8.7 percent to $8.16 billion, beating the average Street forecast of $7.96 billion.

“I think in a better economy our sales certainly would have been higher but ... we have just reported the best non-holiday quarter in Apple’s history despite the economy that we find ourselves in,” Chief Financial Officer Peter Oppenheimer told Reuters in a telephone interview.

The company ended the quarter with $29 billion in cash and marketable securities on its balance sheet, but Oppenheimer said there were no plans to announce a stock buyback or other forms of returning cash to shareholders.

Apple forecast earnings for the third quarter of 95 cents to $1.00 a share on revenue of $7.7 billion to $7.9 billion. That compared to Street estimates for earnings of $1.12 a share on revenue of $8.3 billion.

While some analysts said it may be prudent for Apple to be conservative given the economy, Pacific Crest Securities analyst Andy Hargreaves pointed to some worries that sales may slow in the current quarter as consumers anticipate new products coming to the market, including a possible new iPhone [ID:nN20403162].

“There is going to be concern in this quarter due to purchasing delays in front of new June product releases, but outside of that, it’s really clean,” Hargreaves said of the results.

MAC SHIPMENTS IN LINE

Apple shipped 3.79 million iPhones in the March quarter, better than the roughly 3.3 million units analysts were expecting but down from 4.4 million in the December period.

The company said it was happy with its relationship with AT&T Inc, the exclusive U.S. carrier for the iPhone, and had no plans to change it. Apple also said it would like to begin selling the iPhone in China in the next year.

It sold 11.01 million iPods during the quarter, versus the roughly 10 million units forecast by analysts. Mac computer shipments totaled 2.22 million, down from last year but in line with expectations.

Gross margin rose to a higher-than-expected 36.4 percent in the quarter, from 32.9 percent a year ago, benefiting from favorable commodity and component costs.

“This quarter shows Apple’s resiliency in the face of very weak economic conditions. In addition, it shows the popularity of the iPhone worldwide,” said Cross Research’s Shannon Cross.

Shares of Apple rose to $125.25 in extended trading, after closing the regular Nasdaq session down 25 cents at $121.51.

The stock has gained more than 50 percent since hitting a 52-week low in January, despite some concerns about CEO Steve Jobs, who is on a medical leave of absence until June.

Slideshow (5 Images)

Oppenheimer said on the conference call the company was looking forward to Jobs returning at the end of June.

“Apple is a $30 billion company. It’s an institution and clearly Jobs has been an iconic leader but...there is a deep bench of talented people there at all levels,” said Barry Jaruzelski, partner at Booz & Co.

Additional reporting by Gina Keating and Sue Zeidler in Los Angeles; Writing by Tiffany Wu; Editing by Gary Hill and Carol Bishopric

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