Apple Shares Slide Despite Earnings Beat as 'Lack of Visibility' Scraps Q3 Profit Guidance; iPhone Sales Decline

CEO Tim Cook said Apple's second quarter 'evolved by the hour' amid the coronavirus pandemic, adding that a 'lack visibility and certainty' means it won't publish near-term profit guidance.
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Apple Inc. AAPL shares slipped lower Friday after the tech giant declined to provide near-term profit guidance amid the coronavirus pandemic after topping Wall Street's profit forecasts for its fiscal second quarter.

Apple beat Street estimates for both its top and bottom line, posting sales of $58.3 billion and earnings of $2.55 per share after the close of trading last night. The results were even more impressive considering iPhone revenues fell 6.7% to $29 billion as stores in China, and around the world, were shuttered as a result of the coronavirus outbreak.

Apple said services revenues picked up some of the slack, rising 17% to a record $13.3 billion as shelter-in-place orders attracted new subscribers to the group's suite of cloud-based offerings such as Apple Music and Apple Pay. However, a lack of near-term certainty has forced the group to start its second consecutive quarter without providing financial guidance to investors, although it did forecast a currency headwind of $1.5 billion owing to the strength of the U.S. dollar. 

"Based on Apple's performance during the first five weeks of the quarter, we were confident we were headed toward a record second quarter at the very high end of our expectations," Apple CEO Tim Cook explained to investors on a conference call late Thursday. "In the next five weeks of the quarter, as COVID-19 started impacting China, iPhone supply was temporarily affected, as well as demand for our products within China. This caused us to withdraw our revenue guidance in February."

"Given the lack of visibility and certainty in the near term, we will not be issuing guidance for the coming quarter," he added. "Over the long term though, we have a high degree of confidence in the enduring strength of our business."

Apple shares were marked 0.5% lower in early trading Friday at $292.97 each, a move that would tip the stock into negative territory for the year.

Apple's services subscriber base hit 515 million over the second quarter, Cook said, while its installed base -- a measure of the number of iPhones, iPads and computers in circulation -- topped 1.5 billion.

The profit margin from its services business, in fact, increased by 100 basis points to 65.4%, well ahead of the group-wide margin of 38.4%, while Apple's overall net cash position stood at $83 billion as of March 31. 

"Similar to many other companies that have reported, Apple was tracking to the high end of its guidance prior to COVID-19," said Oppenheimer analyst Andrew Uerkwitz. "As the crisis has shifted from one region to another so has the company's performance. Mgmt indicated it's continuing to invest in new products and services, focused on reopening stores, and its first virtual WWDC." 

"The company raised the dividend and increased the buyback by $50 billion," he added. "Due to high levels of uncertainty, the company is not guiding to the June quarter but did provide some clues. All in all, it played out largely as expected and we remain bullish."