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