Here’s a recent note we published on Apple (AAPL) ahead of the company’s earnings release on Tuesday afternoon.
Apple will again easily exceed the consensus sell-side EPS expectation in Q3 2010 (June 2011). In our view, GPM% upside versus consensus expectations appears to be the largest driver of material EPS outperformance versus today’s consensus sell-side estimates.
Why? GPM% pressures ease in Q3 2010 (June 2011) as the company has now fully lapped its iPad launch (i.e. sales mix is much less of an issue this quarter than the prior four quarters). iPad revenues are likely to double in Q3 versus LY, but so will the higher margin iPhones.
Also, keep an eye on Product Warranty Accruals. Per SEC filings, AAPL’s Product Warranty Accruals have greatly out-stripped the actual Product Warranty Costs for the past three fiscal quarters. AAPL may receive a GPM% boost beginning in Q4 (if not earlier) if Product Warranty Accruals are scaled back versus the prior year.
While GPM% should be much stronger than consensus expectations, we’re concerned about the top-line. There was no iPhone launch in June 2011 to lap last year’s launch of iPhone 4. Therefore, Q4 (September 2011) will not receive a material top-line boost via a product launch this year as it did last year.
In Q3 2010 (June 2011), we’re forecasting EPS of $6.29 versus the current consensus sell-side estimate of $5.80. Our estimate implies revenue growth of +59.3%, a +175 Bps GPM% versus LY, and a +395 Bps EBIT margin improvement versus LY.
In Q4 2010 (Sept 2011), we’re forecasting EPS of $6.84 versus the current consensus sell-side estimate of $6.42. Our estimate implies revenue growth of +32.8%, a +375 Bps GPM% versus LY, and a +451 Bps EBIT margin improvement versus LY.
See link for the full research note and an updated EPS model and company Data Packet.