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With Apple (NASDAQ:AAPL) reporting earnings on Tuesday after the close, I am writing this article because my first attempt at estimating Apple earnings went pretty well so I am using the same process for the upcoming quarter with the improvements in my methods as detailed in a second article I wrote last quarter on what I learned from trying to estimate the earnings of Apple. To review I use the following three methods listed below: Method 1 - Segment Prediction, Method 2- Guidance Prediction, and Method 3 - Historical Prediction.

Method 1: Segment Prediction

I used the segment data of the previous quarter and forecasts for this quarter to get the total revenue, and used Apple's guidance on Gross Margins, Expenses and Tax rate to get the Projected EPS.

Table 1

[The data in the table below is from a PDF table from Apple.com]

The table below shows the units, revenue for each segment and Revenue/Unit for the last reported quarter which was Q2 2012.

Segment

Units

Revenue

Revenue Unit

Mac Desktop

1,199,000

1,563,000,000

1303.586322

Mac Port

2,818,000

3,510,000,000

1245.56423

Ipod

7,673,000

2,528,000,000

329.4669621

Other Music

-

2,151,000,000

#DIV/0!

Iphone

35,064,000

22,690,000,000

647.1024413

ipad

11,798,000

6,590,000,000

558.569249

peripheral and other hardware

-

643,000,000

#DIV/0!

software service,other

-

832,000,000

#DIV/0!

Table 2

In the table below I entered the revenue/unit from above, and for the segments that did not have units, I entered the 2012 Q2 segment revenue multiplied by the sequential growth in that segment. Also, I was unable to find consensus estimates for Mac's and IPods so I multiplied the units from Q2 2012 by the year/year unit % change to get the units for Macs and IPods. I was able to find consensus estimates for Iphones and Ipads, and used the average estimate for each of those segments.

Estimates

Units

Rev/Unit

Rev

Mac Desktop

1,426,810

1303.59

1,859,970,000

Mac Port

2,874,360

1245.56

3,580,200,000

Ipod

6,522,050

329.47

2,148,800,000

Other Music

#DIV/0!

2,280,060,000

Iphone

29,540,000

647.10

19,115,406,115

ipad

15,070,000

558.57

8,417,638,583

peripheral and other hardware

#DIV/0!

540,120,000.00

software service,other

#DIV/0!

831,999,999.99

38,774,194,697

Table 3

[Numbers in Millions] except EPS, and Percentages

The following Income Statement uses the above Apple Total Revenue from Table 2 and Margins, Tax rate and Operating Expense as a Percentage of Estimated Revenue from Apples Guidance here.

Revenue

38,774.19

Gross Margin

42%

Gross Profit

16,091.29

Op ex as % of sales

8.04%

Operating Expense

3,115.76

Operating Income

12,975.53

Other, Net

175.00

Income Before Tax

13,150.53

Tax Rate

25.25%

Income Tax

3,320.51

Net Income

9,830.02

Shares Out

933.58

EPS

10.53

Method 2: Guidance Prediction

I used data from Apples previous 4 conference calls to get an average of how much there revenue guidance is off from the actual revenue, and apply the average to the current quarter. For the Gross margin rate, tax rate, other net, and Operating expenses, I used data from the last conference call.

Table 1

Average Apple Rev Estimate

Actual

32,500,000,000

39,200,000,000

20.62%

37,000,000,000

46,333,000,000

25.22%

25,000,000,000

28,270,000,000

13.08%

23,000,000,000

28,571,000,000

24.22%

Average Under Guidance

20.79%

Table 2

Gross margin Estimates

Actual

42.00%

47.40%

12.86%

40.00%

44.70%

11.75%

38.00%

40.30%

6.05%

38.00%

41.70%

9.74%

Average Under Guidance

10.10%

Table 3

[Guidance Expectations from Apple Conference call]

Expectations:

Revenue

$34 Billion

Gross Margin

41.50%

Operating Expenses

$3.3 Billion

Target EPS

$8.68

Other, Net

$175 Million

Tax Rate

25.25%

Table 4

[Numbers in Millions] except EPS, and Percentages

The following Income Statement uses the Revenue Guidance that Apple gave multiplied by 1+the average Revenue Under guidance percentage so the math looks like this [ 34 Billion*[1+20.79%]] and that gets to the revenue number below of $41.067 Billion. Then in addition to the revenue guidance I will use the same process for estimating the gross margins for Apple so that math looks like this: Gross Margin Estimate of 41.5%* the average amount of under guidance [ Table 2 Above] on gross margins[1+10.10%] and you get a projected gross margin of 45.69%.

Revenue

41,067

Gross Margin

45.69%

Gross Profit

18763.995

Operating Expense

3300

Op ex as % of Sales

8.04%

Operating Income

15463.995

Other, Net

175

Income Before Tax

15638.995

Tax Rate

25.25%

Income Tax

3948.8462

Net Income

11690.15

Shares Out

933.58

EPS

12.52

Method 3: Historical Prediction

[Numbers in Millions] except EPS, and Percentages

For this method I used the comparison between 2011's Q2 and Q3 Earnings, to see what the earnings did last year during the same period of the year. To get the Q3 Estimate for each section of the below income statement I used the percent change from last years Q2 to Q3 and multiplied that percent change by the reported Q2 Values. Example Q2 2012 revenue of $39.186 Billion * Percent change from Q2 to Q3 last year of 15.83% to get a Q3 2012 Revenue Estimate of $45.387 Billion.

Change

Q3 2012 Estimate

Revenue

15.83%

45387.90

Cost of Revenue

15.23%

23761.90

Gross Profit

16.68%

21659.82

Gross Margin

0.73%

47.72%

Selling/General/Administrative Expenses, Total

8.62%

2540.66

R&D

8.09%

909.03

Total Operating Expense

8.49%

3449.97

Op ex as % of Sales

-6.33%

7.60%

Operating Income

19.11%

18324.43

Other, Net

561.54%

979.08

Income Before Tax

20.90%

18777.99

Income Tax

17.25%

4584.49

Tax Rate

-3.02%

24.41%

Net Income

22.06%

14186.33

Shares Outstanding

0.32%

936.52

EPS

21.68%

15.15

Final Data

Below is a table showing the EPS [Earnings Per Share] of the 3 methods above as well the average of the three methods, the EPS whisper number, and analyst EPS estimate from Zacks.com. The PE ratio is from the close on Friday the 20th of July, and is from Yahoo Finance, and the last 3 quarters EPS from MSN Finance.

EPS Estimates

Method 1: Segment Prediction

10.53

Method 2: Guidance Prediction

12.52

Method 3: Historical Prediction

15.15

EPS Estimates

Last 3 Q's EPS Total

Total EPS

Current P/E Ratio

Price Target [PE*EPS Estimate)

Method 1: Segment Prediction

10.53

33.62

44.14

14.72

649.81

Method 2: Guidance Prediction

12.52

33.62

46.14

14.72

679.14

Method 3: Historical Prediction

15.15

33.62

48.76

14.72

717.79

Average of Methods

12.73

33.62

46.35

14.72

682.25

Zacks Analyst Avg. Est

10.38

33.62

44.00

14.72

647.61

Whisper Number

11.04

33.62

44.66

14.72

657.32

Closing Thoughts

I am looking forward to seeing if my average of my three methods indeed again is closer than "the professionals" estimates because last quarter the average of the three estimates was 11.78 compared to the actual EPS of 12.45, and with the improvement of adding in the average under guidance on gross margins I am hoping that my estimate will be even closer to the actual number this quarter. My average of three methods estimate for last quarter was a lot closer than the analyst estimates of 9.99, and a whisper number of 10.03, and I am hoping that I am closer than the professionals.

Disclaimer

Source: My Q3 2012 Apple Earnings Estimate