Apple Inc.'s Q2 FY2024 Earnings Report & Cash Flow Update
Flat revenue but increasing free cash flow
Apple Inc. recently held its fiscal second quarter earnings call, led by CEO Tim Cook and CFO Luca Maestri. Amidst a backdrop of macroeconomic challenges, Apple reported robust figures, highlighting its adaptive strategies and innovative thrust. As I have written about in this forum in the past Apple is one of the highest and most consistent generators of cash flows among publicly traded companies. In recent years it has been generating over $100 billion in free cash flow to the firm annually.
Disclaimer: I have a long position in Apple Inc.
Financial Highlights:
Revenue: Apple announced a significant revenue of $90.8 billion, although slightly marred by a tough year-over-year comparison due to a previous surge attributed to replenishing iPhone inventories. Overall revenue was down 4% for the quarter relative to last year. Trailing 12 months revenue was down about 1% relative to the same trailing 12 months period last year.
Geographical and Sectoral Records: Apple achieved revenue records in several countries, including Canada, India, and Turkey, and a record in Indonesia. Their services segment also hit an all-time high with a 14% increase year-over-year, signaling strong growth in this area.
Free Cash Flow: APPLE’s Free Cash Flow to the Firm and Fee Cash Flow to Equity on a trailing 12 month basis are both up relative to the prior fiscal year. Free Cash Flow margins and ROA are also up. During the quarter Apple used $23.5 billion to repurchase stocks. Significantly, Apple announced that the board authorized another $110 billion for share repurchases.
Product Performance:
iPhone: Despite a 10% decline in iPhone revenues at $46 billion, influenced by last year's high base effect, there was noticeable growth in Mainland China.
Mac: The Mac segment saw a 4% increase, driven by the launch of the new MacBook Air models featuring the M3 chip, reinforcing Apple's dominance in the laptop market.
iPad: Sales dipped 17% to $5.6 billion, facing a tough comparison from last year's strong performance following new product launches.
Wearables, Home, and Accessories: This segment experienced a 10% decline, attributed to a challenging comparison from previous successful launches.
Innovations and Corporate Initiatives:
Apple Vision Pro: The introduction of Apple Vision Pro marks a significant step into spatial computing, with notable adoption among Fortune 100 companies.
Environmental Commitment: Apple is vigorously pursuing its environmental goals, boasting a 50% reduction in emissions since 2015 while using increasingly recycled materials.
Forward-Look
Tim Cook expressed enthusiasm for the upcoming Worldwide Developers Conference and hinted at exciting product announcements. Apple remains optimistic about its role in generative AI, emphasizing investments that leverage its hardware, software, and privacy-focused ecosystem.
Storefront and Community Engagement
Apple's retail presence remains a cornerstone of its strategy, with new flagship stores and community engagements worldwide. The company remains committed to enhancing user experiences and fostering connections through its products and services.
Valuation
Currently, Apple is trading at an FCFE Yield of 3.8% (selling at 26X FCFE). This is slightly above the median FCFE Yield of the Russell 3000 of about 3.6%. The long-term analyst forecasts for earnings growth average about 10%. There are 42 analysts providing price targets ranging from $125 to $150 with an average of $202. So, Apple has 10% upside based on average analysts’ targets.