The Lato Letter: Volume 2, Issue 7.

The Lato Letter: Volume 2, Issue 7.

Now that the Apple numbers are out, here’s a review of the numbers and my thoughts on the good and the bad from them.

Some of the numbers that the market will be focusing on in the release for the 2nd quarter and the 3rd quarter are:

v2_i7_table

On the good side, Apple did surpass both its own guidance and the latest analyst guidance for the 2nd Quarter. The balance sheet cash also increased by $7.5B in the quarter bringing the cash per share to $154.

Apple will use that cash to increase the annual dividend to $12.20, which based on last night’s close is a yield of 3.0%. Most importantly, Apple increased their stock buy-back, as I had hoped for, to $60.0B over the next 2 ½ years. This buy-back is the largest buyback ever announced by any company and returns the cash that Apple expects to generate over that period to shareholders.

David Einhorn of Greenlight Capital (a critic of Apple’s cash management) had the following comment; “We applaud Apple’s decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago. This positive development represents a more shareholder friendly capital allocation policy and demonstrates the conviction of Apple’s management and board in the Company’s future.”

Unfortunately, there was also a bad side to the release. Apple’s guidance for the 3rd Quarter was below the current consensus and if met will be the second consecutive quarter of year over year earnings declines and the first quarter in years of a year over year revenue decline. In addition, although Tim Cook made the following statement; “Our teams are hard at work at some amazing new hardware, software and services and we are very excited about the products in our pipeline.”, he also suggested that it may not be until late in the 4th Quarter (quarter ending Sept. 30th) before these products are available.

With the lower guidance and the delayed product releases, I am sure that analysts will be scurrying over each other today to lower their current estimates and their target prices leading to further short term price declines. With that expectation, I will close with the same words that I used in yesterday’s Lato Letter.

“The numbers will be out in a few hours and the stock will do what it will do but I continue to believe that longer term (as discussed in the BNN clip), the Apple story will continue and rewards to shareholders will resume.”

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change without notice.

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