Apple (AAPL) and Ford (F) both reported earnings in the past two days. These companies are huge bellwethers for the market. In this article we will answer two questions. What in the earnings report disappointed Apple shareholders? And how did Ford overcome the weak the European economy? We will also preview the earnings for Exxon Mobile (XOM) and Skyworks (SWKS). What should investors be looking for in both earnings reports tomorrow?
Apple reported earnings after the bell yesterday. It reported diluted EPS of $10.09 and revenue of $43.6 billion. This beat estimates but did not impress investors. The company saw strong year over year iPhone and iPad sales. The company sold 85 million iPhones and 42 million iPads. IPad grew 138% year over year in China, a key market for the future of Apple. The iPad mini also saw strong sales.
Apple also announced it will increase its buyback program by $50 billion dollars to $60 billion. This would make it the largest buyback in history. Along with this increase, the company also increased their quarterly dividend from $2.65 to $3.05 per share. Both appeared to be a way to appease investors who are growing increasingly frustrated with Apple's management.
The part that did not impress investors had a lot to do with the guidance given during the conference call. Tim Cook openly acknowledged the company's weakening growth and shrinking margins. On the margins side, management said they expect margins to stay in line with what margins were a few years ago. Apple also said it expects revenues for next quarter to be between $33.5 billion and $35.5 billion. That is compared to $35 billion in 2012.
Another major issue investors were looking to be addressed during the earnings call was that of any new products or services. Tim Cook did hint at "exciting new product categories" and "new hardware, software, and services", nothing concrete was announced. At this point, investors want to see real plans and not just hints.
Overall, Apple had a good quarter but bad guidance. Quite frankly, until Apple comes out with a new revolutionary product, they will suffer. Apple derived its competitive advantage through having cutting edge products and services. Apple has not had a new product category since the iPad. In the meantime, competitors, like Samsung, have been able to catch up. Apple has to prove it can innovate without Steve Jobs. Until then, Apple will just be another tech company.
Ford Motor Co.
Ford Motor Co. released earnings on Wednesday that beat estimates and showed strong growth in emerging markets. Analysts were expecting $0.37 EPS and Ford delivered $0.41 EPS which is an 11.4% upside surprise. Ford also posted profits of $2.1 billion.
Ford has struggled in recent years to overcome the downturn in Europe. In Q1 of 2013, Ford seems to have overcome their European business woes with strong growth in North America and Asia. Ford's retail results were a whole 38% higher year over year in Asia and Africa alone. Revenues and wholesale volume were up 10% overall. In North America, revenues increased 20% and operating margin was at 11%.
Revenue from Europe was down 7%. Ford expects this to turn around in the next few years. If Ford can continue to make up for the losses in Europe with increases in sales and revenue in North America Asia, the company may be a great way to play the automotive recovery.
Exxon Mobile is the world's largest company and will report earnings on Thursday. Analysts are expecting around $2.05 EPS with $2.18 EPS being the high estimate. Exxon has beat estimates for the past two quarters and is expected to have another strong quarter. Here's what investors should be looking for:
First, is the oil and natural gas boom in North America still strong? Exxon is expected to benefit nicely from the increase in production of energy sources in North America. Exxon is a highly diversified company and should benefit nicely from the boom in natural gas. And will Exxon still benefit from the price of oil or does management see a weakening in demand for oil.
Second, is Exxon's guidance showing that revenues will continue to grow? If earnings beat the street again, Exxon's PE ratio may prove to be too low to pass up. Currently, Exxon is trading at 11.2x forward earnings with the S&P 500 trading at 17.5x forward earnings. If earnings continue to be lackluster, Exxon may prove to be a good place for investors to store their cash.
Skyworks is a chip maker for, among other companies, Apple. The company will be announcing Q2 earnings on Thursday. The earnings report should reveal how demand is looking for Apple products. Skyworks will not name Apple by name but investors should look out for any news on "one supplier in particular". This will help give a better picture about the demand for Apple's current products.
Also, investors should look at any news on what the effect of the new Qualcomm (QCOM) chips are having on business. As we highlighted here, Qualcomm is offering new chips that would work with any provider's network. This could make Qualcomm chips more attractive than Skyworks.