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Guidance theory
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On average, Apple has 21 days of sales in the bag when earnings are released. This quarter, it is 25 days.
There are usually 91 days in a quarter. 25/91 = 27.5 % of the 91 days.
Shipments to resellers are counted as sales even if the reseller doesn’t have an end customer. The biggest resellers of Apple products in the US include: Amazon, Verizon, ATT, Walmart, Target, Best Buy. (Gives a shout out for Smalldog.com). Some of these resellers put in large orders month by month. So, in effect, orders for more than 25 of the days are known to Apple. Let’s stretch out the 27 % to 30 %.
Then there is the delayed purchase. iPhone 3 sales were low in 2010 Q3 because people knew iPhone 4 was near. So, the above effect of stretching from 27 to 30 might be nullified.
Apple announced iPad 2, cut prices on iPad 1 and everyone is happy. Bargain hunters and top-end buyers know what they want and they go for their choice.
Apple has long experience in beating their guidance. (Usually, they also beat Wall Streets estimates, but never mind that.) Information on store traffic patterns and what Google Trends says help with guidance.
The most dramatic variables of guidance are product appeal (MacBook Air, MacBook Pro, iPad 2, iPhone 4 or 5), cost of goods (labor prices in China, price of oil, special tsunami circumstances), taxes, manufacturing capacity, possibly foreign exchange rates and the big one: the general state of the major economies of the world. Some companies have a habit of substantial 1-time charges. I haven’t seen that in a while for Apple.
I was thinking the rule of thumb is: Apple triples the 25 days worth of sales and issues that as guidance. Never mind that there are 16 more days to go to get to 91 days.
Apple has a firm grip on guidance. The past holiday quarter may have a big extra shot of purchases in those last 16 days.
This quarter: Mac sales will be respectable, iPad sales high and iPhone sales in Asia and Europe will be crucial.
The most conservative guidance number I have is $ 4.50. $ 4.90 to 5.05 is my middle. Anything over $ 5.20 is a rocket sign. All of these numbers are respectable.
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Note that WS is expecting $5.26 EPS guidance from Apple (and $23.85B revs).
Putting that aside, is Apple confident that it can do $0.36 or better in EPS sequentially (if it’s even bothering to take sequential stuff into account)? Well, revs were $15.7B with the high points being 8.4 mil iPhones, 3.27 mil iPads, and 3.47 mil Macs. Apple should better than double the iPhones and maybe triple the iPads depending on production capacity. +6 mil iPads (+$3.5B and change), +10 million iPhones, which is conservative especially if China Mobile gets added/iPhone 5 launches (+$6.5B), +750,000 Macs (+$900 million or so), before looking at other increases like app sales, etc… Let’s just say reasonable, back-of-the-napkin math shows Apple can easily get to $26B revs. I personally think Apple could sell more iPhones and iPads than that, but let’s not forget, even with all-time high revs, all-time high earnings don’t necessarily follow (see Q1 2010 vs. Q3 2010). And Apple is famously conservative.
Unless Apple gets more aggressive with guidance, we may see Apple’s guidance come in under $5.26. What this means AH, who knows.
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The Summer of AAPL is here. Enjoy it (responsibly) while it lasts.
AFB Night Owl Team™
Thanks, Steve. -
I “like” to give a big margin for manufacturing constraints. Hence my low numbers.
That said, $ 27 B revenues is my medium-low reach. This scenario includes delayed iPhone purchases with sales of only 16 m. The lowest scenario is $ 26 B. The optimistic high is $ 29 B.
I’m sticking with my middle EPS range of $ 4.90 to 5.05 until Apple says otherwise.
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If Apple sandbags guidance and the stock takes a hit I’ll be adding to my already substantial share/Leap position. I’m in a position where I’ll be happy either way it goes. Long term (2+ years) this pup has another easy 2x.
cheers to the longs
JohnG -
I am not speaking with a high degree of confidence on this but I think Apple has only guided above Wall Street consensus at the time of the call twice in the past few years but I think they are going to do it again tomorrow as a show of just how strong their businesses are right now. Demand is off the proverbial charts and I’ve seen comments from two people who know more than I do (Gary McNamee and Horace Dediu aka Asymco) suggesting that Apple’s production will not be materially affected by Japan. So, I see Apple’s guidance over Wall Street consensus on the top and bottom lines.
It is an interesting give and take, though. Assuming it happens, how will more aggressive guidance from Apple (leaving a perilously thin 80 cents’ worth of margin of EPS error
) be taken by WS? And even if Oppenheimer spells it out that Apple’s guidance is more aggressive than usual, what will that mean when the next CC rolls around? I wouldn’t mind closer-to-the-mark guidance from Apple one bit, it’d seem to help in the shorter term. But it’d make me a little more wary in July.
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The Summer of AAPL is here. Enjoy it (responsibly) while it lasts.
AFB Night Owl Team™
Thanks, Steve. -
We now have 2 quarters of earnings in the bank which had fairly close guidance and results.
The 3rd quarter is more of the same.
Differences may be:
1. Changes in gross margin (Japan effect)
2. Different product mix: iPods down, iPads up or super up, iPhones steady or down somewhat, Macs steady or down compared to Q2.
3. CloudAFB early consensus is for $ 6.50 to $ 6.70 with a possible breakout (cloud or iPhones).
First take is that it is going to be a warm quarter. Sun is shining on Apple. Stores will be opening. Tim Cook, from what I read, was in the zone.
Second take is that its been a while since we’ve had such a “predictable” season ahead of us.
Third take is we are still not sure about iPhone 5 or what North Carolina really is.
Fourth, analyst upgrades start tomorrow.
Fifth, Apple of course knows how many pre-orders it has for iPads etc and knows its production rates.
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I decided to put a hazy Japan effect in there in spite of TC’s words. Preemptive caution.
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Nice catch on noticing the numbers, Adam.
My entire range of estimates for Q3 is 6.20 to something like 7.10.
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The lawsuit numbers were pretty accurate. But certain grammar issues suggests that someone should have gone to summer school.
TC and PO may have a few words for their legal teams.
