Apple (AAPL) to Report Its First Negative Income Growth Quarter Since 2003

Apple (AAPL) investors should expect the company to report for the first time in a decade that its income this fiscal 2nd quarter was lower than the same quarter the year before, Fortune’s Philip Elmer-Dewitt reports.

Citing Thomson Financial and other unnamed sources, the report said that the current consensus among Wall Street analysts is that Cupertino will report a profit of $10.18 a share for FY Q2’13, down from $12.30 in Q2’12.

“The analysts we’ve heard from so far are even more pessimistic”, notes Elmer-Dewitt, adding that their estimates range from a low of “$9.23 to a high of $10.39 for a mean EPS of $9.85.”

Despite these figures, the good news for long positions is that this negative income growth factor seems already priced into the stock at current levels. Judging the ticker’s performance since early March, the smart money like money managers, mutual funds and ETFs via indexing seems to have been pouring back into AAPL for the past three weeks, producing what it appears to be a trend change in the ticker’s PPS.

That said, one can’t deny that this seems like a contradiction, considering the Street is accumulating Apple’s stock while expecting its profits to shrink. So what’s going on?

Elmer-Dewitt explains by offering some quick numbers and snapshot analysis:

“The problem for Apple is not that its business is collapsing. Indeed, the projected revenues of $41 to $43 billion Apple offered analysts in its quarterly guidance would represent another record second quarter for the company.

Rather, it’s what analysts call a “tough compare” in terms of gross margins — a measure of the efficiency with which a company turns revenue into profits. Last year at this time Apple’s gross margin peaked at an extraordinary 47.37%. This year, following the introduction of a slew of new products — including new Macs, iPhones and iPads — it is projecting gross margins somewhere between 37.5% and 38.5%. That’s what’s driving the income down. Wall Street seems to be betting that in the next six to 12 months, those numbers have nowhere to go but up.”

Apple’s stock is currently up $3.84, or 0.83%, at a fresh one-month high of $465.75/pre-market trading, 8:19am EDT-Monday.

Source: Fortune

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