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Apple Loses All After Hours Gains, Slides After Warning Supply Constraints Will Cost $4-$8 Billion

Apple Loses All After Hours Gains, Slides After Warning Supply Constraints Will Cost $4-$8 Billion

Update (5:45pm EDT): Just when it seemed…

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Apple Loses All After Hours Gains, Slides After Warning Supply Constraints Will Cost $4-$8 Billion

Update (5:45pm EDT): Just when it seemed that AAPL stock would provide the much needed pillar of support to offset the tumbling AMZN and keep the Nasdaq from plunging tomorrow, with its stock initially jumping after hours, AAPL has since sunk, fading an $8 AH gain and dropping as much as 6% to $152, after it warned on the earnings call that supply constraints would cost the company $4 billion to $8 billion in the current quarter, casting a pall on record-setting results that the company just reported.

Covid restrictions, which have swept China in recent weeks, will take a toll on the June quarter, the company said on a conference call, and even though last quarter’s sales and profit had topped analysts’ estimates, fueled by strong demand for the iPhone and digital services, and the company announced $90 billion in new stock buybacks, the stock has staged a nearly $20 reversal lower in the after hours session.

The outlook renewed concerns that supply-chain woes will hamper the tech industry. Apple shares tumbled as much as 6.2% to $153.50 in late trading after the remarks

As reported earlier (see below), sales last quarter rose 8.6% to $97.3 billion, a record for a non-holiday quarter, beating analyst estimates of $94 billion. EPS of $1.52 a share also beat consensus estimates of $1.42, initially sending the shares up in late trading, at least initially..

EARLIER:

Just when traders were getting a deja vu sense of "oh shit, here we go again", and were bracing for another collapse in the Nasdaq tomorrow after Amazon's plunge driven by dismal guidance, moments ago the last remaining GAMMA stock, and the world's most valuable company, Apple may have saved the Nasdaq - and the market - at least until next week's FOMC, when it reported fiscal Q2 earnings that blew away expectations, and in fact, reported its best non-holiday quarter ever!

Here is what AAPL just reported for its fiscal Q2 quarter.

  • Apple 2Q EPS $1.52,  beating consensus estimates of $1.42 (as BBG notes,the 6.8% beat on EPS was only the third single-digit beat in the last two years. It beats by an average 8.1%)
  • Apple 2Q Rev. $97.3B, +8.6% Y/Y, smashing consensus estimates of $93.98B

A breakdown by product category

  • IPhone revenue $50.57 billion, +5.5% y/y, beating estimate $49.16 billion
  • Mac revenue $10.44 billion, +15% y/y, beating estimate $9.23 billion
  • IPad revenue $7.65 billion, -2.1% y/y, beating estimate $7.19 billion
  • Wearables, home and accessories $8.81 billion, +12% y/y, missing estimates $8.98 billion

What is remarkable, is that this was the best non-holiday quarter for AAPL in history. Some more details:

  • Service revenue $19.82 billion, +17% y/y, beating estimates $19.78 billion
  • Greater China rev. $18.34 billion, +3.5% y/y
  • Gross margin $42.56 billion, +12% y/y
  • Cash and cash equivalents $28.10 billion, -27% y/y, estimate $35.81 billion

Earnings snapshot

Commenting on the quarter, CFO Luca Maestri said that Apple "set an all-time revenue record for Services and March quarter revenue records for iPhone, Mac, and Wearables, Home and Accessories. Continued strong customer demand for our products helped us achieve an all-time high for our installed base of active devices. Our strong operating performance generated over $28 billion in operating cash flow, and allowed us to return nearly $27 billion to our shareholders during the quarter."

CEO Tim Cook, said that the company experienced supply constraints in the March quarter that were significantly lower than those in the holiday quarter. But they still had an impact on products, including the iPad. Cook said that the shortages were all attributable to industry-wide chip shortages. Cook also said that despite headwinds facing video streaming services like Netflix, he remains very bullish on Apple TV+, citing recent Oscar wins for “CODA” and positive responses to other original programming.

More importantly, Cook said the company is seeing inflationary pressure and is navigating the issue the best it can. Still, Apple saw revenue growth of 21% in its Americas segment. Cook also said iPhone 13 and iPhone SE demand led to 5% growth in the phone segment, and the company has a record number of upgraders in the quarter.

And just in case the blowout earnings were not enough, AAPL also announced that its board had authorized an increase of $90 billion to the existing share repurchase program.

As noted above, AAPL beat on all sales categories, except wearables, with IPhone sales hitting $50.6 billion, +5.5% y/y, and above estimates $49.2 billion. The release of the new iPhone SE with 5G probably helped a bit and added at least a billion in sales during its brief appearance in the March quarter. Elsewhere, iPad sales came in at $7.65BN, down 2.1% Y/Y but also beating estimates of $7.19BN, while Mac sales also beat estimates of $9.23BN, rising 15% to $10.44BN. According to Bloomberg, the Mac number is extremely impressive and probably means the MacBook Pro and new Mac Studio are performing better than anticipated. The move to Apple Silicon away from Intel has paid huge dividends -- not only in in terms of performance for consumers, but also for Apple’s bottom line. The only product miss was in wearables, which came in at $8.81BN, up 12% Y/Y, but below the $8.98BN estimate.

Apple also reported another blowout record quarter for Service Revenues - meaning Apple TV+, Apple Arcade, Apple Music and iCloud subscriptions - which rose to $19.82BN, beating expectations of $19.78BN.

... although the annual increase of 17.3% was a slight drop sequentially from the 25.6% increase last quarter

The geographic breakdown was also solid: most areas showed a boost in sales, apart from a minor drop in Japan and a notable decline in Rest of Asia/PAC. The Americas remains its largest sales area with $40.882 billion of revenue in the quarter. China was up to $18.343 billion, growing 3.5%, which however was well below the corporate average. Still, the lack of a drop is notable as many had feared China's lockdowns would adversely impact both sales and supply chains - particularly around the iPhone.

And in dollar terms:

Commenting on the quarter, Bloomberg' Mark Gyurman said that "the results helped allay concerns about a slowdown in demand for smartphones, especially in China. Apple also has shown it can navigate supply-chain woes brought by the pandemic, though the latest wave of lockdowns in China may take a toll in the current quarter."

In any case, the results were strong enough - at least initially - to push the stock higher, even if the initial surge is quickly fading after hours.

Tyler Durden Thu, 04/28/2022 - 17:53

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International

Costco Tells Americans the Truth About Inflation and Price Increases

The warehouse club has seen some troubling trends but it’s also trumpeting something positive that most retailers wouldn’t share.

Published

23 mins ago

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May 28, 2023

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Costco has been a refuge for customers during both the pandemic and during the period when supply chain and inflation issues have driven prices higher. In the worst days of the covid pandemic, the membership-based warehouse club not only had the key household items people needed, it also kept selling them at fair prices.

With inflation -- no matter what the reason for it -- Costco  (COST) - Get Free Report worked aggressively to keep prices down. During that period (and really always) CFO Richard Galanti talked about how his company leaned on vendors to provide better prices while sometimes also eating some of the increase rather than passing it onto customers.

DON'T MISS: Why You May Not Want to Fly Southwest Airlines

That wasn't an altruistic move. Costco plays the long game, and it focuses on doing whatever is needed to keep its members happy in order to keep them renewing their memberships.

It's a model that has worked spectacularly well, according to Galanti.

"In terms of renewal rates, at third quarter end, our US and Canada renewal rate was 92.6%, and our worldwide rate came in at 90.5%. These figures are the same all-time high renewal rates that were achieved in the second quarter, just 12 weeks ago here," he said during the company's third-quarter earnings call.

Galanti, however, did report some news that suggests that significant problems remain in the economy.

Costco has done an incredibly good job at holding onto members.

Image source: Xinhua/Ting Shen via Getty Images

Costco Does See Some Economic Weakness

When people worry about the economy, they sometimes trade down when it comes to retailers. Walmart executives (WMT) - Get Free Report, for example, have talked about seeing more customers that earn six figures shopping in their stores.

Costco has always had a diverse customer base, but one weakness in its business may be a warning sign for its rivals like Target (TGT) - Get Free Report, Best Buy (BBY) - Get Free Report, and Amazon (AMZN) - Get Free Report. Galanti broke down some of the numbers during the call.

"Traffic or shopping frequency remains pretty good, increasing 4.8% worldwide and 3.5% in the U.S. during the quarter," he shared.

People shopped more, but they were also spending less, according to the CFO.

"Our average daily transaction or ticket was down 4.2% worldwide and down 3.5% in the U.S., impacted, in large part, from weakness in bigger-ticket nonfood discretionary items," he shared.

Now, not buying a new TV, jewelry, or other big-ticket items could just be a sign that consumers are being cautious. But, if they're not buying those items at Costco (generally the lowest-cost option) that does not bode well for other retailers.

Galanti laid out the numbers as well as how they broke down between digital and warehouse.

"You saw in the release that e-commerce was a minus 10% sales decline on a comp basis," he said. "As I discussed on our second quarter call and in our monthly sales recordings, in Q3, big-ticket discretionary departments, notably majors, home furnishings, small electrics, jewelry, and hardware, were down about 20% in e-com and made up 55% of e-com sales. These same departments were down about 17% in warehouse, but they only make up 8% in warehouse sales."

Costco's CFO Also Had Good News For Shoppers

Galanti has been very open about sharing information about the prices Costco has seen from vendors. He has shared in the past, for example, that the chain does not pass on gas price increases as fast as they happen nor does it lower prices as quick as they sometimes fall.

In the most recent call, he shared some very good news on inflation (that also puts pressure on Target, Walmart, and Amazon to lower prices).

"A few comments on inflation. Inflation continues to abate somewhat. If you go back a year ago to the fourth quarter of '22 last summer, we had estimated that year-over-year inflation at the time was up 8%. And by Q1 and Q2, it was down to 6% and 7% and then 5% and 6%," he shared. "In this quarter, we're estimating the year-over-year inflation in the 3% to 4% range."

The CFO also explained that he sees prices dropping on some very key consumer staples.

"We continue to see improvements in many items, notably food items like nuts, eggs and meat, as well as items that include, as part of their components, commodities like steel and resins on the nonfood side," he added.

  

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Government

‘Kevin Caved’: McCarthy Savaged Over Debt Ceiling Deal

‘Kevin Caved’: McCarthy Savaged Over Debt Ceiling Deal

Update (1345ET): The hits just keep coming for Speaker Kevin McCarthy, as angry Republicans…

Published

2 hours ago

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May 28, 2023

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'Kevin Caved': McCarthy Savaged Over Debt Ceiling Deal

Update (1345ET): The hits just keep coming for Speaker Kevin McCarthy, as angry Republicans have been outright rejecting the debt ceiling deal which raises it by roughly $4 trillion for two years, doesn't provide sticking points sought by the GOP.

In short, Kevin caved according to his detractors.

Some Democrats aren't exactly pleased either.

"None of the things in the bill are Democratic priorities," Rep. Jim Himes (D-CT) told Fox News Sunday. "That's not a surprise, given that we're now in the minority. But the obvious point here, and the speaker didn't say this, the reason it may have some traction with some Democrats is that it's a very small bill."

*  *  *

After President Biden and House Speaker Kevin McCarthy (R-CA) struck a Saturday night deal to raise the debt ceiling, several Republicans outright rejected it before it could even be codified into a bill.

Here's what's in it;

  • The deal raises the debt ceiling by roughly $4 trillion for two years, and is consistent with the structure of budget deals struck in 2015, 2018 and 2019 which simultaneously raised the debt limit.
  • According to a GOP one-pager on the deal, it includes a rollback of non-defense discretionary spending to FY2022 levels, while capping topline federal spending to 1% annual growth for six years.
  • After 2025 there are no budget caps, only "non-enforceable appropriations targets."
  • Defense spending would be in-line with what Biden requested in his 2024 budget proposal - roughly $900 billion.
  • The deal fully funds medical care for veterans, including the Toxic Exposure Fund through the bipartisan PACT Act.
  • The agreement increases the age for which food stamp recipients must seek work to be eligible, from 49 to 54, but also includes reforms to expand who is eligible.
  • Claws back "tens of billions" in unspent COVID-19 funds
  • Cuts IRS funding 'without nixing the full $80 billion' approved last year. According to the GOP, the deal will "nix the total FY23 staffing funding request for new IRS agents."
  • The deal includes energy permitting reform demanded by Republicans and Sen. Joe Manchin (D-WV)
  • No new taxes, according to McCarthy.

Here's McCarthy acting like it's not DOA:

Yet, Republicans who demanded deep cuts aren't having it.

"A $4 trillion debt ceiling increase?" tweeted Rep. Andrew Clyde (R-GA). "With virtually none of the key fiscally responsible policies passed in the Limit, Save, Grow Act kept intact?"

"Hard pass. Hold the line."

"Hold the line... No swamp deals," tweeted Rep. Chip Roy (R-TX)

"A $4 TRILLION debt ceiling increase?! That's what the Speaker's negotiators are going to bring back to us?" tweeted Rep. Dan Bishop (R-NC). "Moving the issue of unsustainable debt beyond the presidential election, even though 60% of Americans are with the GOP on it?"

Rep. Keith Self tweeted a letter from 34 fellow House GOP members who are committing to "#HoldTheLine for America" against the deal.

"Nothing like partying like it’s 1996. Good grief," tweeted Russ Vought, President of the Center for Renewing America and former Trump OMB director.

In short:

Tyler Durden Sun, 05/28/2023 - 11:30

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Government

“Hard Pass”: Here’s What’s In The Debt Ceiling Deal Republicans Are About To Nuke

"Hard Pass": Here’s What’s In The Debt Ceiling Deal Republicans Are About To Nuke

After President Biden and House Speaker Kevin McCarthy (R-CA)…

Published

5 hours ago

on

May 28, 2023

By

"Hard Pass": Here's What's In The Debt Ceiling Deal Republicans Are About To Nuke

After President Biden and House Speaker Kevin McCarthy (R-CA) struck a Saturday night deal to raise the debt ceiling, several Republicans outright rejected it before it could even be codified into a bill.

Here's what's in it;

  • The deal raises the debt ceiling by roughly $4 trillion for two years, and is consistent with the structure of budget deals struck in 2015, 2018 and 2019 which simultaneously raised the debt limit.
  • According to a GOP one-pager on the deal, it includes a rollback of non-defense discretionary spending to FY2022 levels, while capping topline federal spending to 1% annual growth for six years.
  • After 2025 there are no budget caps, only "non-enforceable appropriations targets."
  • Defense spending would be in-line with what Biden requested in his 2024 budget proposal - roughly $900 billion.
  • The deal fully funds medical care for veterans, including the Toxic Exposure Fund through the bipartisan PACT Act.
  • The agreement increases the age for which food stamp recipients must seek work to be eligible, from 49 to 54, but also includes reforms to expand who is eligible.
  • Claws back "tens of billions" in unspent COVID-19 funds
  • Cuts IRS funding 'without nixing the full $80 billion' approved last year. According to the GOP, the deal will "nix the total FY23 staffing funding request for new IRS agents."
  • The deal includes energy permitting reform demanded by Republicans and Sen. Joe Manchin (D-WV)
  • No new taxes, according to McCarthy.

Here's McCarthy acting like it's not DOA:

Yet, Republicans who demanded deep cuts aren't having it.

"A $4 trillion debt ceiling increase?" tweeted Rep. Andrew Clyde (R-GA). "With virtually none of the key fiscally responsible policies passed in the Limit, Save, Grow Act kept intact?"

"Hard pass. Hold the line."

"Hold the line... No swamp deals," tweeted Rep. Chip Roy (R-TX)

"A $4 TRILLION debt ceiling increase?! That's what the Speaker's negotiators are going to bring back to us?" tweeted Rep. Dan Bishop (R-NC). "Moving the issue of unsustainable debt beyond the presidential election, even though 60% of Americans are with the GOP on it?"

Rep. Keith Self tweeted a letter from 34 fellow House GOP members who are committing to "#HoldTheLine for America" against the deal.

"Nothing like partying like it’s 1996. Good grief," tweeted Russ Vought, President of the Center for Renewing America and former Trump OMB director.

In short:

Tyler Durden Sun, 05/28/2023 - 11:30

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