Apple Expected To Beat, But By How Much Is The Question?

| About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) is going to report its fiscal first quarter numbers on Tuesday, January 24th after the bell, and everyone is expecting a monster quarter. The iPhone 4S has done extremely well, Mac Sales are at all time highs, and despite competition from Amazon's (NASDAQ:AMZN) Kindle Fire, iPad sales should be alright. iPod sales are declining, but it accounts for a small portion of the business.

Apple has been criticized in the past for "low-balling", or providing extremely conservative guidance for future quarters when it reports. Apple then goes out and crushes its own guidance, which usually beats street expectations. Last quarter, it missed analyst numbers because the bar had been set too high. Many analysts did not fully take into account iPhone sales being held up for the new quarter when the new version came out. When Apple reported in October, it issued strong guidance for this quarter. The question is not if it will beat its guidance-- which it always seems to do-- but by how much? Let's take a look at some recent historical numbers.

When determining a time period to analyze, I was looking to go back three to four years. However, due to new accounting rules enacted in 2009, Apple reported two sales figures for a few quarters, which threw off some of its guidance numbers. Thus, I will only be looking at the past seven quarters of numbers, the seven quarters since it adopted a new accounting policy for certain products.

First, here is Apple's guidance and actual revenue numbers.

Quarter Guidance Actual Difference*
Q2 2010 $11.0-$11.4 Billion $13.5 Billion 20.54%
Q3 2010 $13.0-$13.4 Billion $15.7 Billion 18.94%
Q4 2010 $18 billion $20.34 Billion 13.00%
Q1 2011 $23 Billion $26.74 Billion 16.26%
Q2 2011 $22 Billion $24.67 Billion 12.14%
Q3 2011 $23 Billion $28.57 Billion 24.22%
Q4 2011 $25 Billion $28.27 Billion 12.88%
Click to enlarge
*Difference uses midpoint when range is given.

Over the last seven quarters, Apple has beat its own guidance by an average of 16.85%, and in the past year, 16.37%. Given its forecast of $37 billion for the current quarter, it would have $43.23 billion if it matches the seven quarter average and $43.06 billion if it matches the four quarter average.

Now onto earnings per share.

Quarter Guidance Actual Difference*
Q2 2010 $2.06-$2.18 $3.33 57.08%
Q3 2010 $2.28-$2.39 $3.51 50.32%
Q4 2010 $3.44 $4.64 34.88%
Q1 2011 $4.80 $6.43 33.96%
Q2 2011 $4.90 $6.40 30.61%
Q3 2011 $5.03 $7.79 54.87%
Q4 2011 $5.50 $7.05 28.18%
Click to enlarge
*Difference uses midpoint when range is given.

Apple has beaten its earnings guidance by an even wider number. The seven quarter average is 41.41%, and in the past year, the average is 36.91%. Based on the seven quarter average and the $9.30 given, Apple would report $13.15 in earnings, and based on the four quarter average it would report $12.73.

My first caution here is to advise you that since Apple is providing much larger base numbers ($37 billion in revenue compared to last year's $23 billion), a similar dollar increase will not lead to a similar percentage increase. For example, if Apple beats by the same dollar value that it did in last year's Q1, $3.74 billion, it would only represent a 10.11% beat in percentage terms. This would be the lowest quarterly percentage beat of the eight quarters here.

The second warning I would like to caution you about is that both the Revenue and EPS numbers I've given based on the averages are well above even the highest end of the current expectations range. The highest numbers currently are about $41.5 billion in revenues and just under $11 in EPS. When looking at the big jump in revenues and earnings this quarter, the first thing you have to remember is that this quarter is 14 weeks for Apple, last year's was 13. It does make a difference.

The second thing to look at is last year's numbers. Apple sold 4.13 million Macs in that quarter, and most estimates this quarter are around 5 million. Apple sold 16.24 million iPhones in the year ago period, and most estimates lately are in the low 30 million range. The company sold 7.33 million iPads, and even conservative numbers for the quarter say about 11 to 12 million. I think Amazon's Kindle Fire will have a slight impact on the iPad, and will cause Apple to change its strategy going forward. Remember too that Research in Motion's (RIMM) Playbook has been extremely disappointing, as Apple and Amazon continue to dominate the market. RIMM's Playbook should have little to no impact on Apple's results. 19.45 million IPods were sold in Q1 last year, but the year over year number for them may decrease.

This article is not my official Apple earnings preview. I will release that article either the day of or day before Apple's earnings on the 24th. Here's an interesting thing that I would like to do. Anyone who wants to take part in my earnings preview for Apple should leave their Revenue and EPS predictions in a comment for this article. You may also leave predictions for each segment (iPhone, iPad, Mac, iPod) if you wish, but at least provide Revenue and EPS. I will collect all of the data I receive, and it will be a segment of my article when it comes out in two weeks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.