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Once again, Apple (Nasdaq: AAPL) topped analysts' expectations as it disclosed its second fiscal quarter financial results after the markets closed on Wednesday.
In a bid to push more analysts to review the way they calculate its earnings, Apple posted non-GAAP (Generally Accepted Accounting Principles) figures in addition to the normal GAAP figures.
While overall sales were down from the company's first first quarter -- as expected, since Apple traditionally does best during the holiday season -- Q2 was, revenue-wise, the best non-holiday quarter in the company's history.
The iPhone remains the jewel in Apple's crown, with sales growing 123 percent year over year (YoY).
News of Apple's performance boosted its share prices and provided a quick pick-me-up for investors when markets opened.
However, Apple lowered the revenue and earnings per share (EPS) figures in its guidance for the third quarter, which ends in June.
Rolling in Dough
Apple's GAAP revenue for the quarter was US$8.16 billion, up $650 million, or 8.6 percent, over the $7.51 billion it chalked up during the same quarter last year.
GAAP net quarterly profit was $1.21 billion with $1.33 EPS. Year-ago figures were $1.05 billion and $1.16. That gives Apple a YoY growth of 15 percent in net profit and nearly the same percentage in EPS.
Gross margin was 36.4 percent, compared with 32.9 percent a year ago.
GAAP in the Results
"Apple's forecasts are always conservative," analyst Rob Enderle, principal at the Enderle Group, told MacNewsWorld. "They significantly beat expectations because they set these expectations aggressively low. ... When they beat the market, they get rewarded."
Most other companies set expectations reasonably close to where they will end up, Enderle said.
Because products like Apple's iPhone are associated with subscription revenue, the company contends that GAAP calculations can distort its results.
GAAP requires that the revenue from, and cost of, goods sold on a subscription basis be recognized over the life of the subscription; no losses are recognized at the time of the sale. However, Apple wants to calculate them when the sales are rung up.
The situation is critical now that the iPhone is making up a bigger proportion of Apple's sales.
Some analysts have already taken Apple's point to heart and are using pro forma figures when calculating Apple's financial results.
View Non-GAAP Figures With Caution
Apple calls its non-GAAP figures "adjusted" figures. Its "adjusted sales" for the quarter are $9.06 billion; adjusted net income is $1.66 billion.
However, Apple warned that the non-GAAP financial figures do not adjust for costs associated with plans to provide new features and software to iPhone and Apple TV buyers. Apple says the non-GAAP figures should be viewed only as a supplement to its GAAP results.
Perhaps ambiguously, Apple also warned that investors should not assume the non-GAAP figures were prepared under a comprehensive set of rules or principles.
While Apple plans to continue releasing non-GAAP figures in future earnings reports, it acknowledged there are no standards, as such, for making these calculations. Apple's non-GAAP financial measures might be unique, the company explained, as they could differ from the non-GAAP financial measures in use at other firms.
Breaking All Records
The second quarter was the best non-holiday quarter for revenue and earnings in Apple's history, said Peter Oppenheimer, Apple's chief financial officer.
That's significant, because sales traditionally fall off after the holiday period. Sales in all operating segments fell by a total of 12 percent from the previous quarter's figures, and revenues were 20 percent lower.
Apple does very well during the year-end holiday season.
"The holiday quarter is anywhere from 25 to 50 percent above normal for Apple because they sell a whole lot of iPods and iPhones and Macs during that period," Yankee Group analyst Carl Howe told MacNewsWorld.
More Details
International sales accounted for 46 percent of Apple's revenue in the second quarter. Macintosh sales were down 3 percent YoY to 2.22 million units due to the overall slump in demand for PCs. However, iPod sales grew by 3 percent YoY to 11.01 million units.
As expected, iPhone sales shot through the roof. They were up 123 percent YoY, with 3.79 million units sold in the last quarter alone. That's what's spurring Apple to release non-GAAP figures.
Consumers are laying down their cash for the iPhone 3G like there's no tomorrow.
During the first quarter of iPhone 3G availability, which ended Sept. 27, 2008, 6.9 million units were sold, Apple reported. That exceeded the 6.1 million first-generation iPhone sales tally for the previous five quarters combined.
The Market and the Future
Apple is in a strong financial position, with $29 billion in cash and marketable securities, Oppenheimer said.
Its strong financial showing led the markets higher Thursday morning, but negative news on other stocks cooled things down.
Apple shares hit $125.43, up $3.90, or about 3 percent. They have gained $16.74, or more than 15 percent, since their closing price of $108.69 on April 1.
Despite Apple's strong showing, Oppenheimer's forecast for the June quarter was muted. He said revenues would be between $7.7 billion and $7.9 billion, and pegged EPS at about 95 cents to $1.
However, the company often underpromises and overdelivers, Enderle reiterated.
"Remember, they tend to be aggressively conservative in their guidance," he said. "There are penalties for intentionally overstating results, but, to my knowledge, there are no penalties for understating them."
